Virus Decimates Chinese NEV Sales, But There Might Be Light Ahead

As the COVID-19 outbreak shows few signs of ebbing, the impact of the epidemic is becoming evident in pretty much all industries. China’s new energy vehicle (NEV) sector is no exception. During the 2020 Chinese New Year holiday alone, the production and sales of NEVs were down 55.4% and 54.4% respectively. As of mid-February, only 5% of China’s authorized car dealerships, called 4S stores (Sale, Sparepart, Service and Survey), resumed operations. Such a slow recovery prompted concerns that China’s overall new car sales could fall by 90% by the end of the month.

The epidemic doesn’t spare anyone. NIO, one of China’s most prominent EV startups that seemed to be starting to recover from the financial hurdles that it had faced ever since its rushed 2018 IPO, is now facing a new major challenge. The company managed to sell just 1,598 vehicles in January, roughly half the amount the company sold in December and down 11.5% year-on-year. NIO only sold one premium vehicle, the ES8, in 2019 with their more popular and more affordable flagship ES6 released later. Thus the 11.5% dip looks quite worrying. 

Tesla, who has been riding a wave of global success and ardor for the past several months that boosted its stock price into the stratosphere, is not immune to the impact of the deadly virus. The company’s stock lost as much as 15% value on Thursday amid weakening sales in China. 

BYD, the torchbearer of China’s EV sales, sold slightly over 7,000 cars in January 2020, a 75% year-on-year slump and a 46% drop compared to December 2019. Another Chinese producer of inexpensive NEVs, BAIC BJEV, the subsidiary of the BAIC Group, saw a 56% decline in sales compared to January 2019 and 95% compared to December 2019. 

Unlike other consumer products and services such as food or tourism that usually do not require much thinking from the customer, automobiles are on the long decision-making side. Most of the demand for cars will not disappear due to the epidemic, but there will be delays in purchases. However, as other industries are significantly affected, the income of small and medium-sized business owners and their employees will decrease, which may curb the demand for expensive items like cars in the near future. Therefore, new car sales could see a sharp decline in the short term. 

Affected by the epidemic, various costs attributable to the NEV industry, such as logistics costs, labor costs, and anti-epidemic costs, are expected to increase to varying degrees. According to the China Automobile Industry Association, as of mid-February, only 59 of the 183 automobile production plants in the country have resumed work. Unable to resume work, OEMs bear high human resource costs.

On the positive side, the outbreak forces the companies to be creative. Car-makers like SAIC and NIO, for instance, started providing online car booking services, which effectively reduced the average in-store waiting time. Online sales became the safest and easiest purchase channel. Future adjustments to the process, enabled by the rapid evolution of big data and AI technologies, are expected to accelerate the development of new retail models to augment the online purchase experience.

As the virus spreads through tiny droplets in the air, a lot of Chinese citizens have become reluctant to use public modes of transportation. According to one online survey, as many as 84.6% of Chinese netizens believe that buying a private car will become more necessary after the epidemic.

In order to avoid taking public transportation, residents of some cities might decide to purchase a personal vehicle once they are able to return to work. In 2003, the SARS outbreak also caused what some Chinese media called a “small climax” for car purchases. However, this increase is expected to be temporary and only evident in certain localities. Thus, auto manufacturers should not expect too much of a rebound.