Beijing Auto Show

Massimo Bonansinga's picture

On Sunday, April 20, 2014 I attended Press Day at the Beijing Auto Show. This was the last day of an intense week of meetings across China, talking to management of auto companies and doing channel checks with auto dealerships.

I visited the Shanghai Auto Show last year (Shanghai and Beijing alternate years for hosting) and my impression was that the level of interest and crowd in attendance was comparable.

The Beijing Auto Show was held in a large exhibition space close to the international airport. It was organized in seven large exhibition halls showcasing passenger vehicles and interspersed by outdoor space used for tire makers and accessories stands. Outside, close to the main parking lot, commercial vehicles were on display. Nearly all of the Chinese and international auto industry is represented at this show.

The Chinese Light Vehicles market is huge, surpassing 20 million units per annum (passenger vehicles only) and continues to by grow double digits. In fact, at current growth rates, the Chinese market will double in 7-10 years and will be larger than the U.S., Canada, Europe, Russia, and Japan combined.

It’s no wonder why all the global manufacturers are in China and why companies manufacture vehicles in China to reduce costs and avoid import tariffs. Imports are growing slower than the market and, eventually, only niche products will be imported (e.g. Ferrari, Lamborghini, etc.)

The government has mandated that foreign and local companies join forces to manufacture vehicles in China and all the foreigners have established joint ventures (JV) to localize their products in the country.

The JVs are very successful because Chinese consumers increasingly buy foreign-branded vehicles and continue to shift demand towards luxury cars and SUVs. Minivans and domestic brands are seeing their market share eroded over time.

Chinese consumers generally like big, comfortable vehicles embellished by a prestigious brand plate. It seems that performance, fuel consumption and handling are much less important. Safety is becoming more relevant to consumers in recent years.

The passion for big vehicles is adequately supplied by global manufacturers that sell extended wheelbase versions of their products in China. The BMW 3, 5, and 7 as well as Audi 4, 6, and 8 and Mercedes C, and E all have the “L” version made specifically for the Chinese market. The extended version looks fine and has acreages of space but the handling is not comparable to the “normal” version, but handling does not sell cars in China, size does!

The Press Day at the auto show was well attended and the crowd concentrated around the three German luxury brands: Jaguar, Land Rover and Great Wall.

Great Wall is a local, privately-held manufacturer (unlike many Chinese auto companies that are state-owned enterprises) and is based in Baoding, outside Beijing. Its claim to fame is its ability to gain sales close to 1 million vehicles per annum by being the leading SUV manufacturer in China.

During the show, Great Wall unveiled its new H8 (a large SUV with a size comparable to a BMW X5) and the H2 (a smaller SUV comparable to a BMW X1). It also presented the H8 Coupe, a nice SUV designed by an international team based in China. Many companies have design bureaus outside their home country (e.g. Hyundai in Germany) and Chinese manufacturers are implementing a similar setup.

The most impressive display of strength was the Volkswagen group that occupied an entire hall. Inside, visitors could enjoy a comprehensive display of VW, Audi, Porsche, Skoda, Lamborghini, and Rolls Royce vehicles. All eyes pointed at the newly launched Porsche Macan which is believed to sell very well in China.

Overall, the Beijing Auto Show was impressive enough to represent the might of the largest auto market in the world and has become the most important venue in the global sector.

Comments

Submitted by Jim Durnin on

Hi, good read. Would you be able to share the investment opportunities that you are taking advantage of, or avoiding in this market? Even if it is from a high level valuation / growth perspective or sector perspective.

Jim

Massimo Bonansinga's picture
Submitted by Massimo Bonansinga on

Jim, thank you for your comment.

I personally think that consensus, based on current macro conditions, is right and we will see roughly 10% growth in auto sales. Therefore China will continue to be the highest growth, large market in the world.

There are many ways to invest in the Chinese auto growth theme. The beauty of our Signature model is that our mandate does not restrict us to a single stock market and we can instead invest globally. But not all investors have the same flexibility and, over time, have developed ways to express bets outside their home stock markets by investing in global companies. For example, Suzuki in Japan is considered the proxy to invest in Indian auto, while Daihatsu is more a play on Indonesia, while Mazda is the way to bet on the North American market and Nissan to play China.

We have a number of investments across the automotive sector and many have direct and/or indirect exposure to China. For example, we are currently invested in Great Wall that is directly exposed to the booming Chinese SUV market as well as in Delphi (a U.S. supplier) that has large exposure to Europe and a fast growing Chinese presence.

Massimo

Submitted by Linda MacDonald... on

Great to read your comments!

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