China’s luxury car sector is showing all the signs of overheating, as both domestic and foreign auto makers spend hundreds of millions of dollars to invest in a vast consumer market whose fast growth makes it increasingly vulnerable to bubbles in many areas. As the annual Beijing Auto Show begins this week, news has emerged that Nissan (Tokyo: 7201) plans to start production of its Infiniti cars in China, seeking to tap strong demand for luxury brands in the world’s largest auto market. (English article) Nissan’s plan comes just a week after US auto giant General Motors (NYSE: GM) announced a similar plan to produce its own luxury Cadillac brand in China. (previous post) Even domestic names are getting in on the act, with brands like Geely (HKEx: 175) and Chery making recent moves that indicate they want to enter the space. It’s easy to see why all the luxury brands are piling into China, where a growing number of affluent consumers are happy to pay big bucks to show off their newly wealthy status. After two years of breakneck growth fueled by government incentives, China’s broader auto market grew by an anemic 2.5 percent last year as the nation’s economy slowed due to global weakness and cooling measures by Beijing. Despite that slowdown, luxury car sales continued to boom, notching solid double-digit gains for the year. That growth has continued into the first quarter of 2012, even as the broader market contracted 3.4 percent in the same period. First-quarter sales for industry leader Audi (Frankfurt: VOWG) jumped 40 percent, while rival BMW (Frankfurt: BMW), the market’s second largest player, also notched healthy growth of 28 percent. While Cadillac and Inifiniti prepare to start local production, the existing luxury players are also all investing big money on their own expansions. Audi currently plans to more than double its annual capacity to 700,000 units per year from the current 300,000, and BMW is embarking on a similar plan that will see it spend 1 billion euros. Adding to the looming glut is Beijing, which has shown a previous inclination to protect domestic industries and to intervene in markets that appear to be overheating. Beijing showed its intentions for the luxury car space earlier this year when it published a preliminary list of approved models for purchasing by government departments – a big buyer of such vehicles for status-conscious officials. (previous post) In what came as a surprise to many, the list excluded all foreign brands, a huge exclusion for government agencies that now purchase $13 billion in cars a year. That provision was designed to help domestic automakers, but also provided a clear signal that Beijing wants to clamp down on luxury vehicle purchasing by government agencies as it seeks to address public perceptions of corruption and wasteful government spending. There’s every indication that demand won’t be able to keep up with the current breakneck expansion of capacity for the luxury car market, both due to natural limitations as well as this kind of government intervention. When that happens, the big automakers will quickly find they’ve spent hundreds of millions of dollars to build massive new capacity that could end up sitting idle for years until demand finally catches up with the current big wave of new investment.
Bottom line: China’s luxury car market is in the process of overheating, which will leave automakers with large amounts of excess capacity when the market slows over the next 2 years.
Related postings 相关文章:
◙ GM Discovers China Luxury Market — Finally 通用汽车在华投产凯迪拉克 亡羊补牢犹未为晚
The growing new love affair between Hollywood and China is taking yet another step forward, with news that New York-listed movie maker Bona Film (Nasdaq: BONA) is in talks with several major US studios to co-produce films for the China market. (
China’s displeasure at the ability of Twitter-like microblogs to quickly and efficiently spread rumors is heading into a new phase, with word that Beijing is ordering all search engines to stop including microblog posts in their results. (
Energy major Sinopec (HKEx: 386; NYSE: SNP; Shanghai: 600028) is unaccustomed to being refused when it makes an M&A offer, though its tactics towards buying private companies are anything but conventional. That’s my conclusion as I read over the latest announcement from Sinopec and another Hong Kong-listed firm named ENN (HKEx: 2688), as they continue to chase China Gas (HKEx: 384), a privately held operator of a China-based natural gas distribution network that has previously shown little or no interest in being acquired. Let’s do a bit of backtracking and review the history of this deal, which is interesting because it marks one of the first unsolicited takeover bids by a big state-owned Chinese firm for a major private company. Sinopec and ENN made their initial bid for China Gas last December, offering about $2.2 billion for the company at a 25 percent premium to its share price at the time. It soon became clear that Sinopec and ENN had done little or nothing to discuss the deal with China Gas before making their offer, and China Gas made it clear that it wasn’t interested in being acquired. (
Facebook may be making global headlines for its upcoming mega IPO, but the social networking giant is making much quieter headlines in China as well, where local media are saying it has been meeting with potential joint venture partners in its long-stated pursuit of entering the market. (
An important trial has just begun in southern Guangdong province, testing China’s young anti-monopoly law and its legal system in a case that could spell big headaches for leading Internet firm Tencent (HKEx: 700). Analysts also point out the case could have a domino effect for other areas where a single company dominates the Web, with online search leader Baidu (Nasdaq: BIDU) perhaps the most vulnerable to a similar lawsuit. But let’s look at the Tencent case first, as that’s the main point here. Perhaps appropriately, the case is being bought by Internet software company Qihoo 360 (NYSE: QIHU), a seasoned veteran with litigation in China, having been sued numerous times by others, including Tencent, and also filing numerous lawsuits of its own against rivals. This latest case has Qihoo suing Tencent for monopolistic practices in the instant messaging space, claiming Tencent’s wildly popular QQ service has a virtual lock on the market. (
I’m sitting at my local Starbucks (Nasdaq: SBUX) having a morning coffee as I write this, so it seems only appropriate that I begin today with a look at this coffee juggernaut which is turning up its China PR campaign as it seeks to triple its size here over the next 3 years. This latest campaign comes at an interesting time, as other media are reporting separately that China’s coffee growers are coming under growing pressure due to a plunge in prices that have left many with big volumes of unsold coffee beans, a fact Starbucks would probably rather people didn’t know. But let’s look at the upbeat news first, which has Starbucks saying it will launch a virtual Starbucks China University and set up a modest fund totaling 1 million yuan, or about $160,000, to assist its local partners in their times of need. (
