China’s auto sales in May were flat over the same previous month and through the first five months, sales were only up 3.71 percent, according to data released by China Association of Automobile Manufacturers (CAAM) on June 12.
Worth noting is passenger vehicle sales were down 2.64 percent in May and even the sizzling SUV segment was “only” up 13.5 percent, far off the 30-50 percent growths normally seen in previous months. As temperature rises and the slow summer months arrive, sales will further taper off over the next few months.
But that is not the only pressure mounting for carmakers in China.
Within two days from June 12-13, three crucial industry regulations – two of them draft versions for public solicitation – were issued by the Ministry of Industry and Information Technology (MIIT) and the National Development and Reform Commission (NDRC).
The Parallel Administrative Measures for Passenger Vehicle Corporate Average Fuel Consumption (CAFC) and New Energy Vehicle (NEV) Credits (Draft for Comments), otherwise known as the CAFC+NEV “dual credit” scheme, was issued by MIIT on June 13. The Guidelines on Improving the Administration of Automobile Investment Projects (hereinafter as Guidelines) was released on June 12 and went into effect on the same day. And almost at the same time the “dual credit” measures were announced, the MIIT issued the Guide for the Establishment of the National Telematics Industry System (Intelligent Connected Vehicle) 2017 (Draft for Comments).
The three key regulations announced within just two days apart are rare for the industry, and combined with the new Administrative Measures of Automobile Sales and the Automotive Industry Mid- and Long-Term Development Plan released earlier this year basically provide a new roadmap for the next phase of industry development and have long-term implications for the market.
The key takeaways from the three most recent regulations as far as investment and technology routes are concerned is that while the door may now be virtually shut for new investments of traditional fuel-powered vehicles, it seems to be wide open for new investment in battery electric vehicles, at least as far as the approval process is concerned. In fact the establishment of JAC-Volkswagen as a BEV only joint venture may open the flood gates for similar Sino-foreign JVs, which no longer are bound by requirements of the Automotive Industry Development Policy (AIDP).
And, if you read the “dual credit” scheme and Guidelines carefully, you would see that the government is clearly favoring BEVs because PHEV investment projects would still be bound by administrative measures of investment for traditional fuel-powered vehicles. The Guide on ICVs, on the other hand, simply points to a future where a BEV must also be an ICV and vice versa.
The future of the industry will be more open yet stricter with tighter supervision and tougher requirements and penalties, and automakers both domestic and foreign will have to race against the clock through whatever means to remain relevant.