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March 2018

China Light Vehicle Sales Update

2018 Kicks Off On a Weak Note, as Predicted

China’s Passenger Vehicle (PV) sales in February 2018 decreased by 6.5% year‐on‐year (YoY) to 1.55 mn units. This, coupled with a decline of 26.6% YoY in the (LCV) sector, pushed the overall Light Vehicle (LV) market down by 9.1% YoY, on total sales of 1.72 mn units in the second month of the year. Although the distortion caused by the timing of the Chinese New Year holiday undoubtedly impacted the market, January’s strong PV sales kept the year-to-date (YTD) result in positive territory, despite LV growth of just 2.0% to 4.51 mn units.

The seasonally adjusted annualized rate (SAAR) of LV sales in February is estimated at 28.2 mn units, 1% down from 28.5 mn units in January. The February YTD average SAAR stood at 28.3 mn units, versus last year’s total LV sales of 28.6 mn units. These results indicate weakness in the market in the opening two months of 2018.

Turning to the production side, however, the situation is far from optimistic as YTD PV output dipped by 2.8%, while LCV volumes declined by 9.2%, bringing overall LV production down by 3.6% YTD in February. This poor performance can be attributed to high dealership inventory levels. The gap between the wholesale and retail sides of the domestic market in 2017 was 1.32 mn units, which can be explained by the addition of new inventory at the dealer level throughout the course of the year. Approximately 0.33 mn units more were added in the month of January 2018, bringing total stocks to 1.55 mn units by the end of the month, thus creating a barrier to increased production. Indeed, a number of brands had to limit output volumes in order to ensure that dealer stock levels remained under control.

The CADA dealer inventory index stood at 1.63 months at the end of February, 3% up on January, but 28% down compared to the same month last year. The index was above the warning line of 1.5 months, but much lower than the average level seen in the same timeframe over the last six years. These figures point to an improvement in the retail side of the market, as inventory levels gradually decline, which augurs well for production volumes in the months ahead.

A closer look at the various segments highlights that SUVs continue to drive the PV market, with YTD growth of 12.4%, while the MPV sector remains in the doldrums. At the sub-segment level, Sub-Compact , Compact Cars and Compact MPVs declined by 3%, 8% and 22%, respectively, as all three have suffered from the expiry of the tax rebate policy on small-engine vehicles at the end of last year.

On the other hand, Midsize Cars, Premium Cars and Premium SUVs grew by 16%, 29% and 18%, respectively, underscoring the ongoing trend for consumption upgrading in the Chinese PV market.

At the brand level, meanwhile, the industry witnessed a remarkable development in February as rose to the No. 2 spot in the PV market, hot on the heels of VW Group, and the first time that a local automaker has enjoyed such a strong position in recent years. Geely’s sales soared by 33% to 0.26 mn vehicles in the first two months of 2018, as the brand benefited from two key factors: firstly, a well-balanced product offering in the SUV and segments and, secondly, its strategic decision to launch competitive products, which has seen almost every model in its portfolio perform well in the market. Within the segment, Geely’s model series topped the segment, while its SUVs have been very well received by consumers.

Geely’s final transaction prices have increased year after year, with its share of the low-cost sector of the market (i.e., models that fall within the CNY50k-80k price bracket) dropping from 71.18% in 2013 to 32.57% in 2017. This trend illustrates that the brand’s improvement has not only be quantitative, but also qualitative. w ww.lm c-auto.c om Oxford ● ● Frankfurt ● Bangkok ● ● São Paulo ● Tokyo 1

China Light Vehicle Sales Update

By the end of 2017, Geely had extended its dealership network to circa 800 outlets, with around 60% of the 130 new outlets added last year boasting experience in global brand distribution. Not only that, but these new dealerships are all located in Tier I and Tier II cities, according to Geely.

Support has also come from the automaker’s acquisition of the brand and a 9.69% stake in Daimler, both of which have improved Geely’s brand image with retail consumers, upping its Premium-brand credentials. The launch of a new, cutting-edge R&D center in the city of last year has also added to the automaker’s industry standing. All told, these advances in product quality, dealership expansion and marketing techniques have underpinned Geely’s exceptional growth over the last two years.

While the pace of growth in the market has been moderate, following the end of the tax incentive policy in December 2017, ample opportunities still exist for those players that are well prepared to maximize the growth prospects that lie ahead.

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China Light Vehicle Sales Update

Market Top Lines Best Selling Models Feb Δ YTD Δ 2018f Δ Feb Δ Share YTD Δ Share Sales 1,814,223 -9% 4,735,919 2% PV PV 1,546,129 -7% 4,077,806 4% 25,763,302 1% 510 40,061 395% 2.6% 98,067 1110% 2.4% LCV 178,417 -27% 434,323 -12% 3,282,286 2% 42,068 2% 2.7% 97,206 -4% 2.4% M&H CV 89,677 -16% 223,790 6% H6 26,623 -10% 1.7% 78,660 12% 1.9% Production 1,709,204 -21% 4,405,318 -3%  LCV PV 1,417,906 -22% 3,725,308 -3% 24,797,582 2% Wuling Truck 18,655 16% 10.5% 43,953 30% 10.1% LCV 193,799 -22% 450,739 -9% 3,282,376 2% JAC Light Truck 17,574 -8% 9.8% 38,125 4% 8.8% M&H CV 97,499 -7% 229,271 11% Foton Light Truck 12,781 -24% 7.2% 29,957 -9% 6.9%

Top Brands (Sales) Top Manufacturers (Production) YTD YTD # Brand Feb Δ YTD Δ # Manufacturer Feb Δ YTD Δ Share Share 1 184,760 -4% 536,331 3% 13.2% 1 SAIC Volkswagen 157,241 2% 359,026 2% 9.6% 2 Geely 106,231 19% 255,147 33% 6.3% 2 SAIC GM 103,309 -18% 330,519 16% 8.9% 3 Honda 79,463 -2% 220,072 21% 5.4% 3 SAIC GM Wuling 133,913 -6% 296,410 8% 8.0% 4 67,395 -20% 202,439 5% 5.0% 4 FAW Volkswagen 86,765 -44% 259,056 -16% 7.0% 5 Changan 69,373 -27% 183,744 -16% 4.5% 5 Geely Group 94,666 5% 227,176 24% 6.1% 6 67,208 0% 179,572 -3% 4.4% 6 Dongfeng 58,679 -11% 174,833 10% 4.7% 7 Baojun 76,974 10% 171,969 17% 4.2% 7 Group 62,920 -28% 163,849 -7% 4.4% 8 Nissan 56,351 6% 152,250 12% 3.7% 8 Great Wall Motor 51,584 -27% 143,888 -5% 3.9% 9 Haval 42,169 -37% 120,628 -19% 3.0% 9 SAIC Motor 45,906 8% 117,230 42% 3.1% 10 Mercedes-Benz 46,827 8% 117,471 14% 2.9% 10 40,839 -14% 110,106 14% 3.0% 11 40,270 29% 114,075 30% 2.8% 11 GAC Honda 40,354 -12% 107,422 8% 2.9% 12 Dongfeng 42,593 -23% 110,777 -18% 2.7% 12 FAW Toyota 38,264 -29% 102,646 -1% 2.8%

13 37,478 27% 101,827 34% 2.5% 13 34,264 -43% 97,850 -25% 2.6%

Passenger Passenger Vehicle Passenger Vehicle 14 Wuling 42,069 1% 97,208 -5% 2.4% 14 Hyundai 30,000 -54% 90,000 -41% 2.4% 15 Hyundai 35,721 -41% 95,883 -32% 2.4% 15 GAC Motor 33,518 0% 83,447 19% 2.2% 16 33,905 3% 95,136 20% 2.3% 16 28,941 0% 73,645 24% 2.0% 17 BMW 36,027 -1% 92,155 6% 2.3% 17 Dongfeng Passenger Vehicle 26,546 -26% 71,040 1% 1.9% 18 Ford 39,063 -20% 90,577 -26% 2.2% 18 28,767 -22% 70,022 -23% 1.9% 19 Beijing 33,246 -16% 83,728 4% 2.1% 19 BYD 25,670 9% 69,544 34% 1.9%  20 34,398 33% 83,447 46% 2.0% 20 Brilliance BMW 25,300 -19% 66,392 11% 1.8% Passenger Vehicle Total 1,546,129 -7% 4,077,806 4% 89.7% Passenger Vehicle Total 1,417,906 -22% 3,725,308 -3% 88.0% 1 Wuling 35,965 -10% 85,898 2% 19.8% 1 SAIC GM Wuling 36,692 -31% 82,142 -24% 18.2% 2 JAC 20,076 -10% 44,559 3% 10.3% 2 Beiqi Foton 18,294 -37% 49,538 -16% 11.0% 3 Changan 17,570 -51% 42,990 -46% 9.9% 3 Jianghuai Automotive 17,929 -9% 42,866 0% 9.5% 4 Foton 15,998 -43% 39,439 -30% 9.1% 4 Changan Automobile Group 19,968 -24% 41,665 -18% 9.2% 5 Dongfeng 12,231 -32% 35,680 0% 8.2% 5 Dongfeng Automobile 15,019 -10% 36,179 4% 8.0% 6 Great Wall 7,284 -26% 18,307 -4% 4.2% 6 17,061 -15% 33,292 -1% 7.4% 7 8,205 -14% 18,286 -11% 4.2% 7 Great Wall Motor 7,432 -21% 20,574 11% 4.6%

8 JMC 7,992 -43% 18,116 -23% 4.2% 8 Brilliance Auto 7,739 -17% 18,353 -10% 4.1% Commercial Commercial Vehicle Commercial Commercial Vehicle 9 CNHTC 6,151 -1% 15,316 21% 3.5% 9 CNHTC 6,420 -3% 16,897 33% 3.7% 10 5,422 208% 13,795 278% 3.2% 10 SAIC Commercial 6,581 370% 13,676 338% 3.0% Commercial Vehicle Total 178,417 -27% 434,323 -12% 10.3% Commercial Vehicle Total 193,799 -22% 450,739 -9% 12.0%

3rd April 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

LMC Automotive

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