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July 2018

China Light Vehicle Sales Update

H1 2018: A Synopsis

China’s Passenger Vehicle (PV) sales in June increased by 1.5% year-on-year (YoY) to 1.91 mn units, while the Light Commercial Vehicle (LCV) sector improved by 20.8% YoY. This led to growth of 3.8% YoY for the overall Light Vehicle (LV) market, on total sales of 2.22 mn units for the month. LV production was up by 6.5% in June, leading to year-to-date (YTD) growth of 3.9%.

The CADA dealer inventory index stood at 1.93 at the end of June, 21% up on May and 10% up compared to the same month last year. The rate was above the warning line of 1.5 and much higher than the average level seen in the same timeframe over the last six years. However, the retail side of the market has not performed as well as the wholesale side. Insurance data illustrate that the gap between wholesales and retail sales of domestically produced vehicles widened to 1.30 mn units in the first five months of the year, equivalent to 15.4% of total retail sales in May 2018 YTD.

In the first half (H1) of 2018, PV wholesales increased by 5.4% YoY. In terms of the three main market segments, the recent strong momentum seen in the SUV market slowed down in H1 to +9%, compared +17% YoY in H1 2017. In contrast, sales rose by 6% YoY in the first half of this year, following a 3% YoY decline in 2017 as a whole. The MPV segment plunged by 14% YoY in the period, continuing the downward trend seen last year.

In May, Car wholesales surpassed SUV wholesales for the first time in the last couple of years. Between January and April, the Car segment posted growth of 3% YoY, while SUV sales soared by 13% YoY. The situation reversed in the following two months, with Car sales jumping by 10.5% YoY versus a 1.6% YoY dip in SUV sales in May and June. On the retail side, the Car segment posted growth of 10.2% YoY, alongside growth of 10.7% YoY in the SUV segment in the first five months of the year. These results indicate that demand is balancing out, with the once-booming consumer appetite for SUVs beginning to taper off. Indeed, with a market share of 43.9% in H1, the segment is clearly no longer in the fast lane. For the remainder of 2018, we expect to see renewed competition between the Car and SUV sectors, with some market share erosion in prospect.

Our current view is that this slowdown in SUV sales is the result of both local and global automakers being squeezed in the segment. Where the local brands are concerned, there can be little doubt that they are adjusting to more mature market conditions, following the initial explosion of new models coming on stream. As the lacklustre recent sales of the H6 and GS4 illustrate, no Chinese automaker can escape the reality that market share expansion depends upon the steady release of newly designed models and a balanced product line. In the meantime, many Car models have been upgraded, thus helping the segment claw back some the ground previously lost to the SUV segment.

Looking at the PV market in terms of brand origin, the Korean automakers enjoyed a dramatic upturn of 111% YoY in June and 28% in the first half of the year. Both Hyundai and Kia made strong recoveries, helped by new facelifts and affordable prices across most of their model ranges. Note, however, that these results were flattered by a low base in the same period last year. The clear losers were the American OEMs, whose sales nosedived by 21% YoY in June and by 7% in H1 2018. , Ford and accounted for a combined 63.6% of American brand sales and posted declines of 6.3%, 38% and 34.5% YoY, respectively. Chinese automakers registered an overall increase of 5.4% YoY in the first six months of the year, marking the lowest growth rate since 2012.

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China Light Vehicle Sales Update

Turning to the wider dynamics influencing the market, the Chinese government implemented two key new policies in the first half of the year: the import duty on vehicles entering China was cut and the restrictions on foreign equity were removed. Both will lead to profound changes in the LV market. Meanwhile, the escalating trade war between China and the US has dominated recent headlines. As the tit-for-tat tariffs will inevitably impact the Chinese macroeconomy, along with LV demand, we cut our topline forecasts for 2018, 2019 and 2020 accordingly.

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China Light Vehicle Sales Update

Market Top Lines Best Selling Models

Jun Δ YTD Δ 2018f Δ Jun Δ Share YTD Δ Share Sales 2,368,486 5% 14,484,950 5% PV PV 1,912,136 2% 12,097,241 5% 25,706,346 1% Lavida 44,571 26% 2.3% 241,433 -6% 2.0% LCV 304,433 21% 1,689,293 1% 3,221,080 0% 26,005 -25% 1.4% 240,318 -8% 2.0% M&H CV 151,917 17% 698,416 12% 510 20,507 -33% 1.1% 216,742 111% 1.8% Production 2,317,843 7% 13,968,205 4%  LCV PV 1,899,018 5% 11,668,032 4% 24,673,983 1% Wuling Mini Truck 37,128 103% 12.2% 179,795 29% 10.6% LCV 274,394 17% 1,615,621 2% 3,137,669 -2% Foton Light Truck 28,160 40% 9.2% 149,616 12% 8.9% M&H CV 144,431 11% 684,552 12% Changan Light Truck 20,426 119% 6.7% 112,458 74% 6.7%

Top Brands (Sales) Top Manufacturers (Production) YTD YTD # Brand Jun Δ YTD Δ # Manufacturer Jun Δ YTD Δ Share Share 1 Volkswagen 239,096 9% 1,051,840 5% 8.7% 1 SAIC Volkswagen 176,672 31% 702,293 8% 6.0% 2 119,738 38% 487,342 33% 4.0% 2 SAIC GM 164,903 13% 659,944 14% 5.7% 3 Honda 107,633 -12% 433,446 2% 3.6% 3 FAW Volkswagen 174,828 22% 597,751 -5% 5.1% 4 95,832 5% 415,172 4% 3.4% 4 SAIC GM Wuling 114,913 6% 567,368 7% 4.9% 5 Changan 69,633 56% 363,804 -6% 3.0% 5 Geely Group 136,080 51% 493,942 33% 4.2% 6 Buick 92,713 1% 362,989 -1% 3.0% 6 Dongfeng 107,514 2% 399,382 8% 3.4% 7 Nissan 95,470 16% 352,537 15% 2.9% 7 Group 71,397 7% 328,522 -5% 2.8% 8 Baojun 70,685 21% 340,323 20% 2.8% 8 Great Wall Motor 70,175 -1% 290,524 5% 2.5% 9 Haval 55,055 -11% 235,578 -17% 1.9% 9 SAIC Motor 72,760 41% 256,956 35% 2.2% 10 Hyundai 70,163 100% 232,822 1% 1.9% 10 54,153 -8% 236,822 7% 2.0% 11 Mercedes-Benz 54,228 14% 230,737 14% 1.9% 11 GAC Honda 59,249 10% 234,186 5% 2.0% 12 49,743 9% 222,302 25% 1.8% 12 Hyundai 69,000 90% 222,200 -17% 1.9%

13 60,470 54% 218,753 44% 1.8% 13 FAW Toyota 46,081 -10% 215,220 -3% 1.8%

Passenger Passenger Vehicle Passenger Vehicle 14 Dongfeng 35,304 -8% 202,013 -14% 1.7% 14 46,409 -31% 196,957 -28% 1.7% 15 BMW 46,293 -4% 193,065 6% 1.6% 15 GAC Motor 51,683 20% 193,967 23% 1.7% 16 43,481 4% 192,801 18% 1.6% 16 38,619 24% 155,449 21% 1.3% 17 Wuling 31,805 -17% 181,728 -6% 1.5% 17 39,369 -8% 154,191 -16% 1.3% 18 Ford 40,340 -21% 178,400 -32% 1.5% 18 GAC Toyota 43,324 23% 148,441 6% 1.3% 19 Beijing 39,605 -13% 168,539 -7% 1.4% 19 BYD 35,877 19% 148,326 22% 1.3%  20 39,397 42% 164,558 38% 1.4% 20 Brilliance BMW 35,186 16% 142,837 11% 1.2% Passenger Vehicle Total 1,912,136 2% 12,097,241 5% 86.3% Passenger Vehicle Total 1,899,018 5% 11,668,032 4% 87.4% 1 Wuling 50,203 -21% 205,778 -16% 12.2% 1 SAIC GM Wuling 53,206 4% 191,714 -12% 11.9% 2 Changan 29,755 28% 127,134 -10% 7.5% 2 Beiqi Foton 29,508 -21% 117,846 -15% 7.3% 3 Foton 34,566 -7% 116,398 -18% 6.9% 3 Changan Automobile Group 30,639 16% 107,177 -3% 6.6% 4 Dongfeng 27,060 18% 91,233 7% 5.4% 4 25,766 7% 87,793 1% 5.4% 5 JAC 20,265 2% 86,448 2% 5.1% 5 Jianghuai Automotive 18,648 37% 81,113 4% 5.0% 6 JMC 16,013 9% 56,935 -3% 3.4% 6 Dongfeng Automobile 20,261 -3% 78,313 -5% 4.8% 7 Great Wall 12,962 32% 44,699 13% 2.6% 7 Great Wall Motor 13,239 20% 47,212 16% 2.9%

8 11,749 5% 40,667 -3% 2.4% 8 Brilliance Auto 11,807 9% 40,181 -1% 2.5% Commercial Commercial Vehicle Commercial Commercial Vehicle 9 CNHTC 9,699 23% 36,447 19% 2.2% 9 CNHTC 9,761 17% 38,556 24% 2.4% 10 8,337 191% 31,637 238% 1.9% 10 SAIC Commercial 8,862 147% 31,544 243% 2.0% Commercial Vehicle Total 304,433 21% 1,689,293 1% 13.7% Commercial Vehicle Total 274,394 17% 1,615,621 2% 12.6%

31st July 2018

For further information contact Ms. Angela Chen, Phone +86 21 5283 3568, [email protected] w ww.lm c-auto.c om Oxford ● Detroit ● Frankfurt ● Bangkok ● Shanghai ● São Paulo ● Tokyo 3

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