China's Auto Exports Explode as Domestic Demand Craters

China's auto exports skyrocketed as domestic demand plummeted in the country's peak car-buying season, according to data released by the China Passenger Car Association on Monday. September retail sales of passenger vehicles dropped 28% year-over-year, reaching 1.62 million units, marking the 12th consecutive monthly decline from a year earlier.

However, sales of electric cars and plug-in hybrids rose by 5% from August, accounting for 67% of the month's total sales. Despite this surge in new-energy vehicles, their retail sales declined 17% year-over-year to 1.08 million units, highlighting the extent of the domestic market slowdown. Overall sales volume faced significant year-on-year pressure, with limited month-on-month recovery as structural differentiation became more pronounced, with fuel vehicles contracting rapidly and new energy vehicles leading the market.

High oil prices further accelerated the oil-electric substitution trend. Exports provided a lifeline for domestic manufacturers, with shipments of passenger vehicles abroad surging 73.7% to 917,000 units, making up 36% of manufacturers' sales, up from 19% a year ago. Some auto manufacturers now have exports accounting for more than half of their sales, with some nearing 70%.

However, the sustainability of export demand is uncertain as Europe plans to limit Chinese hybrid vehicle imports to 350,000 per year, while the US continues to ban these vehicles. The surge in memory and chip prices due to AI and supply chain constraints has slowed the growth of new energy vehicle sales. Industry inventory remained low, and high oil prices put additional strain on fuel vehicles, causing dealers to be more cautious in purchasing new cars.

The report suggests that the current downturn in the car market is temporary and linked to short-term policy disruptions and a high base, rather than a sign that car ownership fundamentals have peaked.