Impact of Recent Vehicle Sales Trends on US Listed Chinese Auto Suppliers

Passenger Vehicle sales in China rebounded in October to a year-over-year gain of +13.3% following a 50% reduction in the purchase tax on smaller vehicles.  10 month YTD sales were +3.9%.  The long-term outlook remains mildly favorable due to the country’s low level of vehicle ownership and rising personal incomes.

Commercial Vehicle sales in China rebounded in October to a year-over-year gain of +2.3%.  10 month YTD sales were -10.6%.  The outlook for truck demand is dependent on a  recovery in spending on Infrastructure and Real Estate Construction.  The outlook for bus demand is mildly favorable due to rising urbanization.  The only real bright spot is production of “New Energy” vehicles which currently benefit from heavy government subsidies.

The US listed auto suppliers have varying exposure to these segments:

China Auto Suppliers

  • CXDC: China  XD Plastics makes modified plastic compounds used in “exteriors (automobile bumpers, rearview and sideview mirrors, license plate parts), interiors (door panels, dashboard, steering wheel, glove compartment and safety belt components), and functional components (air conditioner casing, heating and ventilation casing, engine covers, and air ducts)”.  Plastic compounds are tailored to satisfy customer requirements for flexibility/rigidity, strength, and resistance to heat/cold and corrosion. In many applications plastic parts can replace metal components at lower cost and lighter weight.  Penetration of larger commercial vehicles is limited due to greater strength requirements.  The company has a long-term goal of expanding sales to railways, aircraft, medical devices, and 3-D printing.
  • SORL: SORL Auto Parts (English siteChinese site) is a leading domestic producer of braking systems.  The company recently received a buyout offer from its Chairman at a price of $2.84/share.
  • ZX: Chine Zenix Auto is the country’s leading producer of commercial vehicle wheel rims.  The company made a considerable investment in a new facility capable of producing forged aluminum wheels for commercial vehicles.  Alcoa estimates that such wheels will eventually capture 50% of the international market due to their lower maintenance cost and the fuel savings created by their lower weight.  Adoption of aluminum wheels in China has been slow and Zenix facility is still in a stage of trial operation.  Zenix aluminum wheel output may benefit from rising “new energy bus” sales by Zhengzhou Yutong.
  • CAAS: China Automotive Systems is the country’s leading producer of steering systems.  Most of the company’s operating subsidiaries were developed as joint ventures with major auto companies ensuring close corporate relationships.  the company also has a strong supplier relationship with Chrysler North America.
  • CYD: China Yuchai International is a leading domestic producer of diesel engines (primarily for commercial vehicles) and has an emerging product line of natural gas-powered engines.  The company deserves credit for the high quality of its investor communications and its consistently high dividend payouts.

CXDC and CAAS are the main beneficiaries of the renewed strength in the passenger market while ZX SORL and CYD are reliant on the weaker commercial vehicle market.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s