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Heavy-duty truck sales up 89 percent in July: six factors behind the surge

Sales of heavy-duty trucks in the traditional slack season of July surged 89 percent to 94,000 units, continuing surprisingly strong performance so far this year.

According to analysis of cvworld.cn, six major reasons are the driving force behind the surge.

First, it is the imbalance between demand and supply in the logistics market. In terms of demand, logistics market indicated a generally higher degree of boom with rapid increase in freight volume pulled up by the upward economic cycle in the first half of 2017. According to information released by the Ministry of Transport, the highway freight volume in H1 2017 rose 10 percent to 16.7 billion tons and freight turnover increased 9.4 percent to 3.044 trillion ton-km. Moreover, total value of social logistics in H1 posted a year-on-year addition of 7.1 percent to ¥118.9 trillion. Therefore, generally speaking, in the background of faster GDP growth and manufacturing recovery, logistics demand growth accelerated in H1.

In terms of supply, capacity supplies of heavy-duty trucks are in constant decline due to stricter control on oversizing and overloading. A series of control measures including the notices released in February and May resulted in the continued drop in capacity supplies of heavy-duty trucks and the rise of transport demand in H1, which brought huge potential for heavy-duty trucks. Many heavy-duty truck users accelerated the pace of replacing old vehicles with new ones, thus bringing constant support and driving force for the sales surge.

Besides, from the perspective of economics and consumer behavior, commercial vehicle users will speed up the pace of upgrading to transport vehicles of higher efficiency to satisfy customers’ demand for timely and complete delivery of goods.   

Second, it is the significant rise in vehicle purchase by organization-based users with sounder reputation and stronger capital strength to transport goods at lower cost and higher efficiency, thus raising the status of logistics companies. So far this year, many logistics companies have strong desire of purchasing and replacing better vehicles to enhance their core competitiveness and seize more market share in the future.

Third, it is driven by fixed assets investment. National investment in real estate development grew 8.5 percent from a year earlier to ¥5.06 trillion in H1, commercial housing sales areas rose 16.1 percent to 746.62 million square meters, while construction starts increased 10.6 percent to 857.2 million square meters. Meanwhile, national fixed asset investment in H1 posted an addition of 8.6 percent from the previous year to ¥28.0605 trillion, including 21.1 percent year-on-year increase in infrastructure investment and 5.5 percent year-on-year increase in manufacturing investment. Rapid growth in fixed asset and infrastructure investments obviously pulled up demand for engineering and logistics vehicles. Demand for purchasing vehicles related to engineering remains strong even in a slack season.    

Moreover, the continued recovery in construction machinery industry showed better than expected strength and continuity in H1. It’s worth noting that excavator sales surged 101 percent to over 8,900 units in June and 101 percent to 75,000 in H1. It is expected that excavator sales growth in July will be 80-100 percent and annual sales will definitely exceed 120,000 units.

Fourth, it is the momentum regained in coal transportation market due to early arrival of hot days this year and the national de-capacity trend that leads to short supply in large coal mines and shut-down of small coal mines. As a result, logistics companies and individual users have more passion in buying and replacing vehicles, which has boosted the heavy-duty truck market in late Q2 and into July and August.

Fifth, it is the steady decline in diesel prices. The #0 diesel price has stabilized below ¥5.8/L since the beginning of 2017 with relatively lower transportation cost for heavy-duty truck users, which has fueled the passion for vehicle purchases.

Sixth, it is the expected sound growth of heavy-duty trucks export. Demand for heavy-duty trucks is under rapid rise in both domestic and foreign markets. Export of heavy-duty trucks from January to July rose around 20 percent, which has driven up the whole-year market to some extent. For instance, CNHTC received total export orders for 22,000 heavy-duty trucks in the first five months of the year, up 51 percent and taking up 53 percent of the national truck export volume during that period.

Based on the above analysis, heavy-duty truck market in slack season will maintain huge demand and even drive up market growth in later months.

Sales for this year are likely to reach 1.05-1.1 million units under these favorable factors, creating a new all-time record high in sales for the segment.

 

One million units again: a foregone conclusion?

Based on total sales of 678,000 units in the first seven months of 2017, the market would need to only average 64,500 units a month the rest of the way for heavy-duty truck sales to top 1 million units in a single year again, not impossible given the performance so far.

Based on order intake trends from manufacturers, August sales are likely to be around 85,000 units, up over 70 percent year-on-year. In that case, the market only needs to average 59,400 units in the remaining four months of the year for annual sales to hit 1 million units. Compared that with the average monthly sales of 96,800 units in the first seven months and continuing high order intake and production plans at major heavy-duty truck makers, no signs are pointing to that average monthly sales suddenly dropping to below 65,000 units.

It is truly amazing how annual heavy-duty truck sales can hit 1 million units again after seven years even without the benefit of the “¥4 trillion stimulus package” and how policies can sway the market to another high.

China sold a record 1.0174 million heavy-duty trucks in 2010. The segment needs to only average 68,000 units a month from August to December to break that record mark. This is highly likely, based on growth trends so far.

(Rewritten by Xu Jun based on author’s article on cvworld.cn)

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