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Mainland China Truck Market Continues to Deteriorate

The policy-induced pre-loaded consumption has given mainland
Chinese language medium- and heavy-duty truck (MHDT) market a chill since
July, with manufacturing slicing by almost 60% as in contrast with the
similar interval of final yr. The present provide chain constraints
brought on by semi-conductor and energy shortages will weigh on
manufacturing actions into 2022. In our November 2021 forecast, we
count on the mainland Chinese language MHDT manufacturing to additional unfastened round
25,000 items for the second half of 2021 and 15,000 items for the
first quarter of the following yr.

Excessive inventories of China 5-level vans stay the largest

Owing to the OEMs’ value competitors, the pre-buy exercise in
preparation for the China 6 emission guidelines have been vastly amplified,
leading to an over-storage of China 5-level vans throughout seller
channels within the first half of 2021. By the tip of October,
nationwide MHDT inventories are calculated at 260,000 items, nonetheless
means larger than the standard charges of 150,000-170,000 items. Roughly
two thirds of inventories are China 5-level vans, regardless of a
closure of registrations in main markets reminiscent of Hebei, Shaanxi,
and Shandong. Part of the unsaleable vans has flowed into the
second-hand market with value depreciating as much as 50%. Such value
differential, coupled with widespread considerations over rising utilization
value, makes China-6 degree vans even much less favorable. Though the
ultimate likelihood to register a China 5-level truck is about on December
31, 2021 in some areas, the excessive stock strain will doubtless
deepen into early 2022 earlier than the complete clearance of latest China
5-level vans out there.

Semiconductor scarcity will get worse however below management

The worldwide automotive semiconductor scarcity has worsened by the
pandemic resurgence in Malaysia and Vietnam because the summer season
months. To reduce losses below the tighter assets, some OEMs
have prioritized manufacturing to bestselling fashions or new fashions
that must be pushed to the market, whereas some OEMs have positioned
orders of key accounts the primary in line. Furthermore, there have been
circumstances of pausing acceptance of superior orders due to the
uncertainty about ultimate deliveries. Because of this, the typical lead
time of latest vans in most producers are prolonged from one week
to above 4 weeks. The subtle premium fashions that account
for lower than 10% market share suffered probably the most, with manufacturing
line charges nearly halved for a number of manufacturers. We count on the
semiconductor provide chain to remain gloomy for the approaching months,
however its impacts on the MHDT manufacturing ought to be manageable below
sluggish gross sales of China 6-level vans.

Energy scarcity danger could persist within the medium time period

The coal provide disruption stemming from the mainland Chinese language
authorities’s vitality consumption management has triggered a extreme
energy crunch throughout the nation, with greater than 20 provinces
experiencing totally different levels of load shedding measures since
mid-2021. Besides for 3 northeastern provinces – Liaoning,
Jilin, and Heilongjiang the place the residential sector is affected,
most provinces have stored energy rationing measures inside
energy-intensive industries. Some energy-intensive industries such
as aluminum, electronics, and metal are ordered to curtail capability
by 20-30% within the second half to satisfy carbon discount commitments,
posing extra hurdles to automotive provide chain and industrial
freight transport. On one hand, the softening demand for China
6-level vans has hindered truck makers to go the inflating
producer value on to retail costs. However, the continued
downswing in industrial output will undermine the highway freight
restoration. Though the federal government has fine-tuned insurance policies to ramp
up coal manufacturing and reined in coal and energy costs, an upturn
isn’t more likely to emerge till the second quarter of 2022 when the
winter heating season ends. Given the federal government’s anti-pollution
ambitions, the provision disruption dangers could maintain for fairly a

With de-stocking of China 5-level new vans, we predict MHDT
inventories to rebuild from the third quarter of 2022, supporting
some enhancements in manufacturing. Nevertheless, the anticipated slowing
financial system in addition to financial reform measures together with property
deleveraging, monetary de-risking, and industrial decarbonization
will proceed to behave as a drag from the demand aspect. The not too long ago
launched State Council’s guideline on antipollution campaigns which
spotlight a nationwide elimination of China 1-3-level vans by
2025 could convey a flip to the market, whereas its sensible
enforcement and impacts stay unsure earlier than the issuance of
extra particular measures.



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