Traditional vehicle sales dip to lowest levels in decades

In May, domestic retail auto sales fell 22.1% y/y to 1.51 million units – the sixth consecutive month of double-digit declines (CPCA).

Internal combustion engine (ICE) sales bore the brunt of the hit, collapsing 39% y/y, down to just 560,000 units.

• February and April saw similarly grim figures, with sales also dipping below 600,000. All three months rank among the lowest monthly ICE tallies China’s domestic market has seen in decades.

The NEV market proved more resilient, with sales falling a comparatively modest 7% y/y to 950,000 units.

• This allowed NEV penetration to hit 63% – the highest level ever, and the second consecutive month above 60%.
• For the first time, none of China’s ten best-selling passenger vehicle models in May were ICEs.

Get smart: Expensive oil prices and increasingly sophisticated NEV technology are driving a structural step-up in electric vehicle penetration rates, which had hovered around 50% for nearly two years.

• Meanwhile, collapsing ICE sales means ICE-dependent automakers and plants will struggle to remain economically viable, making further discounts and capacity shutdowns likely.

Looking ahead: China’s auto market has been hit with a triple whammy of reduced trade-in subsidies, increased purchase taxes, and an increasing saturated market as vehicle ownership soars.

• We expect annual auto sales to decline by double digits this year, with ICE vehicles bearing the brunt.