汽車業(yè)沉睡巨龍

Equity29OctoberEuropeanAutos&AutoChina:Equity29OctoberEuropeanAutos&AutoChina:asleepingAmarketinturmoil:Giventhesharpdeclineinmonthlycarsalesfiguressincethesummer(-8%3Q18,-25%MTDOct),theprospectsforChinesecardemandremainakeyconcernforautosinvestors.InthisreportweexaminewhathascausedthedropinvolumessinceQ3andthemidandlongertermoutlookforcarsalesinChina.INDUSTRYEuropeanAutos&AutoForafulllistofourratings,pricetargetandearningschangesinthisreport,pleaseseetableonpage2.Thecurrentcontractioninsalesislargelylimitedtothevolumemarket.Webelievethisisbecauseinadditiontoagloomiereconomicoutlookandfearsoveraglobaltradewar,animportantcauseofthedownturnisBeijing’scrackdownonunregulatedP2PfinancinginTier3-5cities.Furthermore,near-recordgasprices(up50%sinceJanuary2016)mayalsobeburdeningmassmarketbuyers.Incontrast,premiumsales,whichtendtorelyonfinancingthroughmoreregulatedchannels(captiveFSarms,banks,insurersetc)andaremoreresilienttofuelpriceinflation,haveheldupwell(+12%ytd).Ourbasecasescenarioremainscautiouslyoptimisticforautosalesfor2019E,notjustgivenrelativelysupportiveGDPgrowthrates,butalsoinlightofapotentialgovernmentstimulusforcardemand.Thiscouldtakeseveralforms,includingeasingcurbsonP2Plending,taxincentivesorscrappingschemes.Butwithoutgovernmentstimulus,wenotethatChineseautosalesmaystall.EuropeanAutos&AutoPartsKristinaChurch+44(0)203134Barclays,UKDorothee+44(0)207773Barclays,UKMohit+91(0)226175Barclays,UKWeareyettofindalongtermpredictivemodelforChinacardemandataprovincelevelbutwehighlightten“hot”provinces.Ourlatestheat-mapillustrateswhichChineseprovincesharbourthegreatestuntappedvehicledemandpotential.WhilesomeprovincesinChinaareclearlyover-saturatedwithcars,weseeopportunitiesinthesetenregions,whereincomestatisticsarestrongestandcardensitylowest.Allelseequal,werethese“hotprovinces”toreachaveragecarpenetrationonaparwithRussia(341cars/1000people),totalChinasaleswouldgrowataCAGRof7.5%forthenext5Wearepositiveontheprospectsforpremiumdemand,givenagrowingmiddleclassandhighexpansionpotentialfromgreaterfinancingrates.ThelongertermprospectsformassOEMsappearmoremixedandtheopportunitiesshouldbesetinthecontextofapossibleshiftfromcarownershiptosharedmicro-mobility(e-bikesandscooters).Giventhedramaticdeclineinsalesvolumesoverrecentmonths,itiseasytolosesightoftheopportunitiesforautodemandinChina.Intoday’sreportwethereforepresentourbasecasefor2019Eautogrowthof4.7%,predicatedongovernmentstimulus.Withnostimulus,wepresentabearcaseof-5%(assumingfurtherdeclinesin1H19butstabilisationinH2)andaworstcasescenarioof-15%,andwehighlightthepotentialimpactonourcoveredOEMs.Weassumepremiumcarsalesoutperformthemassmarketinallscenariosby3ppts.BarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ThisresearchreporthasbeenpreparedinwholeorinpartbyequityresearchanalystsbasedoutsidetheUSwhoarenotregistered/qualifiedasresearchanalystswithFINRA.PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE每日每日免費獲取報（增值服務關注公回復：研究報加入“起點財經(jīng)”微信群Barclays|EuropeanAutos&AutoSummaryofourRatings,PriceTargetsandEarningsChangesBarclays|EuropeanAutos&AutoSummaryofourRatings,PriceTargetsandEarningsChangesinthisReport(allchangesareshowninBMW(BMWGY/Continental(CONGY/CONG.DE)DaimlerAG(DAIGY/FiatChryslerAutomobiles(FCAIM/PorscheAutomobilHoldingSE(PAH3GY/PSHG_p.DE)RenaultSA(RNOFP/RENA.PA)VolkswagenAG-PFDPreferred(VOW3GY/OWOWEWEWUWUWOWOWOWOWEWOW106.00218.0010.3114.947.282.6211.7614.4025.2511.1115.718.473.0115.4615.1329.47203.00Source:BarclaysResearch.SharepricesandtargetpricesareshownintheprimarylistingcurrencyandEPSestimatesareshowninthereportingcurrency.FY1(E):CurrentfiscalyearestimatesbyBarclaysResearch.FY2(E):NextfiscalyearestimatesbyBarclaysResearch.StockRating:OW:Overweight;EW:EqualWeight;UW:Underweight;RS:RatingSuspendedIndustryView:Pos:Positive;Neu:Neutral;Neg:NegativeValuationMethodologyandValuationMethodology:ToreachourcurrentvaluationforVolkswagenprefs,weemployasum-of-the-partsvaluationmethodologyusingablendofpeermultiplesforthedifferentbrands/businessesandmarketvaluesforlistedholdingsandminorities.Wethenapplya25%conglomerateholdingdiscounttothepreferencesharestotakeintoaccountVW'scorporategovernanceissues.WealsoassumeanadditionalEUR5.5bncashoutfromDieselgate,EUR4bnmorethancurrentlyprovisionedfor.RiskswhichMayImpedetheAchievementoftheBarclaysResearchValuationandPriceTarget:Themainriskstoourpricetarget,inourview,are:1)ThefalloutsurroundingtheNOxemissionsscandalandpossiblefurtherregulatory,legal,andrecallcostsaswellasthechangeovertoWLTPinEurope,2)externalrisks,suchasmacroeconomicfactors,outsidethecontrolofthecompany,leadingtoaweakerdemandandpricingenvironmentthanwecurrentlyassumethatcouldmakeourforecastsdifficulttoachieve,includingrisingrawmaterialsandvolatileFXrates3)concernsaroundcorporategovernanceandmanagement'sfocusonSource:Barclays29October2EuropeanAutos&AutoVolkswagenAG-PFDPreferred(VOW3GY/ EPSFY1 EPSFY2OldNew26-Oct-18 New%ChgOldNew%ChgOldNewEuropeanAutos&Auto PosBarclays|EuropeanAutos&AutoEXECUTIVESUMMARY–CHINA:AMARKETINChinesecarsaleshaveseenasharpcontractioninFollowingastrongstartto2018,Chineseautosaleshaveslowedsincethesummer.Inparticular,July,AugustandSeptemberhaveseenarapiddeteriorationincardemandwithChineseautosalesfalling7.7%inthethirdquarter(andlatestdataforOctobershowsthefirstthreeweeksofthemonthdown-25%,althoughwenoteinpriormonthsalast-weekpushbydealerssawearlylossespartiallycompensatedbymonth-end).DemandiscurrentlyparticularlyweakinChina’slowertiercitiesandamongthemidmarketJVsandlocalbrands.AgloomiereconomicpictureandfearsovertradewarshaveburdenedtheChinesestockmarketandcurrency,reducingChinesepurchasingpowerandconsumerconfidence.ItisalsopossiblethatsomebuyersarewaitingfortheChinesegovernmenttostepinwithcartaxpurchaseincentives(asitdidinlate2015tocounteramoremodestsummertimeslump)andthusholdingofffrombuyingnewvehicles.AnadditionalfactorisBeijing’sclampdownononlineP2Plending,whichhasbeenanimportantsourceofautofinancing.Thisappearstohavetakenasignificanttollonautosales.1Finally,near-recordgasprices(up50%sinceJanuary2016)mayalsobeBarclays|EuropeanAutos&AutoEXECUTIVESUMMARY–CHINA:AMARKETINChinesecarsaleshaveseenasharpcontractioninFollowingastrongstartto2018,Chineseautosaleshaveslowedsincethesummer.Inparticular,July,AugustandSeptemberhaveseenarapiddeteriorationincardemandwithChineseautosalesfalling7.7%inthethirdquarter(andlatestdataforOctobershowsthefirstthreeweeksofthemonthdown-25%,althoughwenoteinpriormonthsalast-weekpushbydealerssawearlylossespartiallycompensatedbymonth-end).DemandiscurrentlyparticularlyweakinChina’slowertiercitiesandamongthemidmarketJVsandlocalbrands.AgloomiereconomicpictureandfearsovertradewarshaveburdenedtheChinesestockmarketandcurrency,reducingChinesepurchasingpowerandconsumerconfidence.ItisalsopossiblethatsomebuyersarewaitingfortheChinesegovernmenttostepinwithcartaxpurchaseincentives(asitdidinlate2015tocounteramoremodestsummertimeslump)andthusholdingofffrombuyingnewvehicles.AnadditionalfactorisBeijing’sclampdownononlineP2Plending,whichhasbeenanimportantsourceofautofinancing.Thisappearstohavetakenasignificanttollonautosales.1Finally,near-recordgasprices(up50%sinceJanuary2016)mayalsobeputtingpressureonmassFIGUREChinapassengervehicleretailsalesy/ychange2017-y/y0%--3%--Underourbasecase,weforecastgrowthof4.7%inChinaautosalesinFor2019weseethreepossibleChinamarketscenarios.Undereveryscenariowehavemoreconfidencethatthepremiumendofthemarketcanoutperformthemarket.YTDpremiumvolumeshaveoutperformedtheunderlyingmarketby>11ppts.Weexpectthistrendcontinueinto2019E,althoughweforecastamoremoderateoutperformanceofjustWenotethatmicro-mobility(atermwedefineasanyvehicleunder500kgs)isexpandingexponentiallyglobally,withe-bikesinparticularbecomingprevalentinChina.Sofarwehaveseenlittlecannibalizationofautodemandasaresult,butitremainsonourradarofpotentialfuturedisruptionChinaAutomotiveNews,29October3Aug-Barclays|EuropeanAutos&AutoOurbasecaseassumes4.7%growthin2019E.Ourbasecaseispredicatedonthegovernmentsteppinginwithadditionaltaxincentives,targetedatlowertiercitiestooffsetthesofteningdemandfromrestrictionsonpeertopeer(P2P)lending.ThisshouldsteadythemarketandreturnChinatomidsingle-digitgrowth,morealignedtocurrentGDPforecasts.Thiswouldbesimilartotheslowdowninsummer2015,whichwasmetwithincreasedgovernmentincentivesintheformoftaxcutsonautosalesthatledtoastrongreboundin4Q’15and12%growthintheunderlyingBarclays|EuropeanAutos&AutoOurbasecaseassumes4.7%growthin2019E.Ourbasecaseispredicatedonthegovernmentsteppinginwithadditionaltaxincentives,targetedatlowertiercitiestooffsetthesofteningdemandfromrestrictionsonpeertopeer(P2P)lending.ThisshouldsteadythemarketandreturnChinatomidsingle-digitgrowth,morealignedtocurrentGDPforecasts.Thiswouldbesimilartotheslowdowninsummer2015,whichwasmetwithincreasedgovernmentincentivesintheformoftaxcutsonautosalesthatledtoastrongreboundin4Q’15and12%growthintheunderlyingmarketin2016.Webasethisassumptiononourunderstandingoftheimportanceoftheautoindustrytothecountry’sGDPtargets.OurcurrentChinaearningsforecastsbycompanyarebasedonthisbasecasescenario.FIGUREBarclaysChinabasecasesalesandproductionGreaterChina(incY-o-Y 4.5% 2.4%-Source:Barclaysresearch,AbearcasescenariowouldseemassmarketdemandstallandChinacarsalesvolumesfall5%in2019E:WerethegovernmentnottoprovideastimulusinChina,wecouldseeascenariounfoldwherebymassmarketChinaautosalesstallforseveralyears,asthemarketdigeststhepaceofnewvehiclesalreadybroughtontothefleet.Weassumethatin2019EwewouldseedemandinH1onasimilarlevelto2H18(ie-10%)andzerogrowthin2H19E.Wenotethatunderthisbearcasescenario,wemightseeevenlessdenselyvehiclepopulatedareasinTier3/Tier4citieshavingreachedpeakashouseholdsshiftfromadesireforcarownershiptootherformsofsharedmobility.Wenotethatmicro-mobility(atermwedefineasanyvehicleunder500kgsandincludesvehiclessuchasbikes,scooters,or4-wheeledmotorisedpodswhicharelargelyfocusedonthelowmileagerange)isexpandingexponentiallyglobally,withe-bikesinparticularbecomingprevalentinChina.HoraceDediu,founderofA,estimatesmicro-mobilitycurrentlyhasa70mndailyactiveuserbaseglobally.Thepopularityofmicro-mobilityinChinaisevidencedbyDidiChuxing’s2016investmentinbike-sharingplatformofo2.Whileasyetthereislittleevidenceofmicro-mobilitycannibalisingcarownershipinChina,itisanareawehopetoanalyseinmoredetailtoprovidecomfortonourbasecasescenarioforChinaautodemand.Aworstcasescenario:Underthisscenario,wewouldseeChinadomesticdemandcollapsingacrossmultiplesectorsinthecontextofaglobalrecession.Thisscenario,whilefarfromourbasecase,wouldcertainlymarktheendoftheChineseautomotivegrowthstory.UnderthisscenarioweassumetheautomarketinChinacontractsafurther-15%in2019E(withpremiumdemandcontinuingtooutperformbutstilldown-Didiinvestsinbicycle-sharingplatformofo,ChinaDaily,26Sept29October4BarclaysSalesEstimates2015 20172018E(unitsmn)2019E2020E2021EChina(inc Y-o-Y 5.8% 1.4%- BarclaysProduction 20172018EEstimates(unitsmn)2019E2020E2021EBarclays|EuropeanAutos&AutoFIGUREWepresentthreescenariosforChinaautodemandinPassengercarsBarclays|EuropeanAutos&AutoFIGUREWepresentthreescenariosforChinaautodemandinPassengercars-Source:BarclaysThefollowingtableanalysesthedownsiderisktoOEMearningsfromacontractioninChina’smarketdemandtoourBearcaseandourWorstcasescenarios.FIGUREWewouldseethefollowingEPSadjustmentsunderourbearandworstcaseSource:Barclays29October5BasecaseBearWorst (incl China%changeto China%changeto TotalmarketYoY Barclays|EuropeanAutos&AutoCHINABarclays|EuropeanAutos&AutoCHINA–NEAR,MID&LONGTERMInadditiontoagloomiereconomicoutlookandfearsoveraglobaltradewar,animportantcauseoftherecentdownturninChinesecardemandisBeijing’scrackdownonunregulatedP2Pfinancing.Furthermore,near-recordgasprices(up50%sinceJan.2016)mayalsobepressuringmassmarketbuyersQuickrecaponP2PandwhyithasimpactedautoOverrecentyearstheexpansionofP2Plendinghasputcardemandwithinreachofamuchgreaternumberofindividuals.P2Pplatformsdirectlyconnectborrowers,eitherindividualsorcompanies,tolenders.China’sonlineP2Plendingindustryhasgrownrapidlysince2007asP2Pplatformshavebecomepopularwithinvestorsseekinginterestratesfarabove(typicallybetween8-12%)thoseavailableinfixedbankdeposits(typically2–3%for375%ofChineseP2Pborrowershaveamonthlyincomebelow5,000yuan($720)andoftencannotqualifyforbankloansorhave reachedtheircredit 3Theytendtobeyoungadultswithnocredithistories.MoreovertheyoftenliveinChina’slowertiercities.AccordingtothePeople’sBankofChina,attheendof2017China’s8,000P2Pplatformshadaround50mregisteredusersand$190bnofoutstandingloans.AcarpurchaseisthesecondmostpopularreasonforborrowingviaP2P(afterhomerenovationprojectsandaheadoftuitionfees),andaccordingtoChineseSecuritiesfirmShenwanhongyuanSecuritiesbetween10%and15%ofnewcarsalesarefinancedthroughP2Ploans.ChineseregulatorswereinitiallyslowtorespondtotheemergenceoftheP2Pfinancingchannel.However,withanincreasingnumberofP2Pborrowersdefaultingorsimplyabscondingwiththefundstheyhadbeenlentandsignificantsocialimplicationsforsavers,governmentregulatorsfinallyrespondedthisyearandvowedtoaddressthebaddebtrisk.AccordingtothePeople’sBankofChina,5,700platformshadbeenclosedbytheendofMayleavingaround2,900inoperation.Atthesametimelenders,alarmedbyreportsofdefaultsandfrozenassets,havehurriedtowithdrawtheirfundsorattheveryleastbecomemuchmorecautiousaboutputtingtheirsavingsintosuchproductsinthefirstNikkeiAsianReview,May1429October6Barclays|EuropeanAutos&AutoFIGUREChinaP2PoutstandingFIGUREChinaP2Py/ygrowthNumberofP2PCNYy/y0-Barclays|EuropeanAutos&AutoFIGUREChinaP2PoutstandingFIGUREChinaP2Py/ygrowthNumberofP2PCNYy/y0-00Sep-Sep-Sep-Sep-Jun-Jun-Jun-Jun-Source:Barclaysresearch,Source:Barclaysresearch,GaspricescouldbeanadditionalpressureinthevolumeWebelievethattherelativegreaterslowdowninthemassmarketispartiallydrivenbygasprices–whichareupsharplygiventheincreaseinglobaloilprices(inUSD)andthefallintheyuanrelativetotheUSD.Asaresult,Chinesedriversarefacedwithpricesup50%sincetheirJanuary2016low.FIGUREGaspricesinChinaRMBperFeb- Feb- Feb- Feb-RMBPerSource:NationalDevelopmentandReformFeb-Feb-Feb-Feb-Andwhilethepricesareclosetothelevelsin2012-15,wewouldnotethatasthemarkethasshiftedtolowertiercitiesandlocalbrands,amoreprice-sensitivecustomermayhavecomeintothemarket.Asaresult,theincreasedgasprice(alongwithotherinflationarypressuresonhouseholdbudgetslikefoodandrent)maybecontributingtotheslowdown.Moreover,itmayexplainsomeofthepullbackinSUVmix–whichpeakedat44.2%ofsalesinDecember2017,andfellto39.7%inJulyand41.2%inAugust.PremiumbrandsareholdingupmuchbetterthanvolumeInterestingly,thepremiumGermanbrands(Mercedes,BMW,Audi)continuetoseegrowonamonthlybasisdespitethemarket’soverallcontraction.Asisusuallythecase29October7Barclays|EuropeanAutos&Autoaneconomicdownturn,thehigherendofthemarketseemsmoreresilient.Afreshproductline-upisalsohelpfulinthiscontext,particularlyintheall-importantSUVsegment(BMW,Audi).However,anotherkeyfactormaybetheGermanOEMs’dependenceontraditionalregulatedfinancingchannels(captivefinancingarms,banks,insurers),whichremainopenandaremoredominantinTier1andTier2citieswheretheGermanpremiumplayersmarketshareisgreater.Incontrast,theexposuretoP2PlendinginTier3,4and5citiesisprovingparticularlychallengingtothelocalvolumemakers.Finallypremiumcustomerstendtobesignificantlylesssensitivetogaspricemoves.WenotethatthispositivevolumemomentumcomesinspiteoftheadditionalcostsBMWandMercedeshavefacedfromthehikeinimporttariffsontheUSproducedSUVSsoldinFIGUREChinamonthlysaleshighlighttheongoingstrengthofpremiumBarclays|EuropeanAutos&Autoaneconomicdownturn,thehigherendofthemarketseemsmoreresilient.Afreshproductline-upisalsohelpfulinthiscontext,particularlyintheall-importantSUVsegment(BMW,Audi).However,anotherkeyfactormaybetheGermanOEMs’dependenceontraditionalregulatedfinancingchannels(captivefinancingarms,banks,insurers),whichremainopenandaremoredominantinTier1andTier2citieswheretheGermanpremiumplayersmarketshareisgreater.Incontrast,theexposuretoP2PlendinginTier3,4and5citiesisprovingparticularlychallengingtothelocalvolumemakers.Finallypremiumcustomerstendtobesignificantlylesssensitivetogaspricemoves.WenotethatthispositivevolumemomentumcomesinspiteoftheadditionalcostsBMWandMercedeshavefacedfromthehikeinimporttariffsontheUSproducedSUVSsoldinFIGUREChinamonthlysaleshighlighttheongoingstrengthofpremiumSource:Barclaysresearch,CAAM,Company2018SalesandOurFY2018salesforecastforChinaisforadeclineof-2.2%.ThiscomparestothelatestforecastsfromIHSof+1.2%.WeareconcernedthatthesalesweaknessseenoverrecentmonthswillcontinueintoyearendandforecastaQ4salescontractionof10.9%.Wealsonotethatmonth-to-dateinOctober,autosalesvolumesaredown25%YoY.Weexpectthisnumbertomoderatebymonth-end,giventhelastminuteincentivisationalwaysseenatdealerstowardstheendofthemonth,butitdoesnotimplystrongrecoverypotentialin4Q18E.WeexpectQ4productiontofall12.2%y/y(toadjustinventoriesforalowersaleslevel),takingthefullyeardown3.6%(IHS+1.1%).29October8China Total VW PSA BMW May- Aug- YTDBarclays|EuropeanAutos&AutoFIGUREBarclaysChinabasecasesalesandproductionestimatesGreaterChina(incBarclays|EuropeanAutos&AutoFIGUREBarclaysChinabasecasesalesandproductionestimatesGreaterChina(inc -7.2%- 4.5% -Source:BarclaysResearch,OutlookforLookingto2019weremaincautiouslyoptimisticontheprospectsforChinesecardemand(BE+4.7%)andproductionlevels(+4.5%)inlightoftherelativelysolidGDPgrowthlevelsoureconomistsexpect(BE+6.5%2019)andapossibleprebuyingeffectaheadoftheimplementationsofthenewChina6aemissionsstandard(takeseffectfromthesecondhalfof2020).However,wedonotethatourdemandforecastsfor2019EalsorelyonimplementationofagovernmentstimulusschemetoreinvigoratelowermassmarketcardemandinthefaceofthedeclinesinP2Pfinancingandhigherfuelprices.Giventheeconomicimportanceofthecarindustryfortheeconomyasawhole,weregardaChinesegovernmentstimulusforautomotivesalesaslikely(China:RRRcutsuggestsPBoCprioritizesdomesticconsiderations,10/8/18).RecentpressreportsindicatetheChinaAutomobileDealersAssociation(CADA)submitteddocumentslastmonthtothecountry’sfinanceandcommerceministriesproposingthe10%autopurchasetaxtobehalved(see“Chinacardealerspushfortaxcutasautogrowthstalls”Reuters11-Oct-2018).WebelieveagovernmentstimuluscouldcomeinsomecombinationEasingcurbsonshadowbanking-giventhatexposuretoP2PlendinginTier3,4and5citiesisprovingparticularlychallengingtothelocalvolumemakers.Taxincentives–afterthesummer2015contraction,theChinesegovernmentcutthesalestaxonautopurchasesto5%fromtheprior10%level.WewouldexpectnewincentivestotilttowardlocalOEMsand/orlowertiercities.Potential‘cashforclunkers’–althoughwe’dnotethatthesize/ageofthevehiclefleetthatmightbeeligibleforsuchaprogramissomewhatlimitedandmaynotbethepreferredmethodofthegovernment.Withoutgovernmentstimulus,2019EdemandcouldWhileourbasecaseassumesfurtherautogrowthin2019E,wealsoseeascenariowheredemandisnotstimulatedbygovernmentmeasuresandcontinuestosufferinto2019E.OurbearcaseassumptionassumesH1’19Evolumesfallafurther-10%andthenstabiliseinH2’19Etoleavetheoverallmarketdown-5.0%fortheyear.Underanevenmorepessimisticrecessionaryscenariofornextyear’sdemand,wecouldsee2019Eautodemandfall-15.0%.29October9BarclaysSalesEstimates1Q18 (unitsmn)YTD- 20172018E2019E2020E2021EGreaterChina(inc -7.0%- 5.8% - BarclaysProduction 2Q183Q18E4Q18EEstimates(unitsmn)YTD- 20172018E2019E2020E2021EBarclays|EuropeanAutos&AutoBarclays|EuropeanAutos&AutoInvestorshavefrequentlydisplayedawaryattitudetoChinesecarvolumegrowthgiventhe‘bubble’fearsintheearlystagesofthemarket’sgrowthandmorerecently2016and2017’spullforwardimpactofthe2015taxrebate.AtpresentsoftweeklyandmonthlysalesdataandconcernsovertheeconomicimplicationsofthetradewarbrewingbetweenChinaandtheUSareonceagainleadinginvestorstoquestionthelongtermdemandstoryinChina.Intheearliersectionofthisreportwediscussedtheshorter-termtrendsandwhatmaycurrentlybeholdingcarbuyersbackfrommakingbigticketpurchases.Wealsolookedatthepotentialdynamicsfor2019Edemanddependingonthespeedandintensityofgovernmentstimulusactions.Inthissectionwewillexaminelongertermdynamics.Inourview,despiterecentdatatothecontrary,Chinaactuallyremainsasignificantlyunderpenetratedregionand,therefore,onethatstilloffersagoodlong-termgrowthopportunityforcarmakers.Inparticular,wehighlighttheenduringstrengthofpremiumdemand,(+12%YTD18).Withfurtheropportunitiesforfinancialservicespenetrationandagrowingmiddleclass,wethinkthemarketshareofluxurycarsinChinahasmoreupside.AstobemorepositivethancurrentlyexpectedbyThatsaid,wenotethatdemandisrarelyeverlinearandthatwhileourbasecaseassumptionisforareturntogrowthin2019Eandwithpremiumdemandoutstrippingmassmarketgrowth,theremaybebumpsalongthewaywhichcouldheighteninvestorfears.FIGUREChinaSAARhasmarched012-motrailing29OctoberMar-Barclays|EuropeanAutos&AutoFIGUREChinaSAARgrowth-ChinaSAARgrowthSource:BarclaysLowpenetrationrates,butagrowingmiddleclasshavedrivenvolumeThe#1keydriverofChina’scardemandgrowthhasbeenimprovingincomesandthecountry’sgrowingmiddleclass.ThecarremainsanindispensablestatusBarclays|EuropeanAutos&AutoFIGUREChinaSAARgrowth-ChinaSAARgrowthSource:BarclaysLowpenetrationrates,butagrowingmiddleclasshavedrivenvolumeThe#1keydriverofChina’scardemandgrowthhasbeenimprovingincomesandthecountry’sgrowingmiddleclass.ThecarremainsanindispensablestatussymbolinChina.Yetat151vehiclesperthousandpeople,vehicleownershipstillsignificantlylagsthedevelopedworldwhereownershipratesaretypically>500perthousandpeople.Thatgapshouldgraduallybebridgedasincomelevelsincrease.TherelationshipbetweenGDPpercapitaandvehiclepenetrationisstrong,withanR2of96%whentakingaglobalsamplegroup.LatestIMFforecastsareforGDPgrowthtoremainabove5%until2023.FIGUREChinaremainsveryFIGURE…butasthemiddleclassgrows,salesshouldGDPperCapitaLightVehiclesper1,00000-Vehiclesper1,000Source:BarclaysResearch,Source:BarclaysResearch,IHS,WorldAnotherwaytothinkaboutwhereChinaisonthedemandgrowthcurveistocompareittothegrowthtrajectorythattheUSexperiencedintheearly20thcentury.China’sprogressfitstheUSquitewell,andthiscomparisonwouldagainimplythatthenumberofvehiclesperthousandpeoplecouldexpandanother30%inthecomingdecade.Oneimportantdriverforbothperiodsistherapidbuildoutofinfrastructure.AbetterroadnetworkisencouragingcarownershipandusageinChina,andweexpectthistocontinueasimprovementsmoveinlandfromthenowbuilt-upcoastalareas.Between2007and2017,29OctoberMar-Barclays|EuropeanAutos&AutoChinabuiltmore1.2mkilometresofnewroad,morethantheentirelengthofthenetworksintheUKandItalycombined.Weuseinfrastructureasoneofthefourvariablesinourmultipleregressionmodelforprovince-by-provinceforecasts.FIGURECarpenetrationinChinaversusUSintheearlyFIGURERoadlengthinChinaBarclays|EuropeanAutos&AutoChinabuiltmore1.2mkilometresofnewroad,morethantheentirelengthofthenetworksintheUKandItalycombined.Weuseinfrastructureasoneofthefourvariablesinourmultipleregressionmodelforprovince-by-provinceforecasts.FIGURECarpenetrationinChinaversusUSintheearlyFIGURERoadlengthinChinaversusUSintheearlyRoadlength(10,000Vehiclesper1,0000USfromChinafromUSfromChinafromSource:BarclaysResearch,USDepartmentofTransportation,Source:BarclaysResearch,USDepartmentofTransportation,HowmuchfurtherheadroomforInordertoassessthemid-tolong-termpotentialofthemarket,weexamineChinaonaprovince-by-provinceleveltoevaluatewheretheincrementalbuyerscouldcomefromoverthenextdecade,aswedonotbelievetheentiretyofChinawillreachdevelopedmarketlevelsofcarpenetrationover