Sales of passenger cars in China continue to surge.
In July, sales were up 26.3% year-on-year to reach 1.6 million units, the highest monthly growth in 30 months, according to the China Association of Automobile Manufacturers.
Sales over the first seven months of the year were up 11% to 12.64 million cars. Vehicle sales, including passenger cars and commercial vehicles, were up 9.84% to 14.68 million units in the first seven months.
According to Forbes, the main reason for the boost in passenger car sales is a government policy that halves purchase tax on cars with engines smaller than 1.6 liters. Sales of those cars rose a massive 38.6% to 1.14 million units in July, or 71% of the total.
This policy started in October last year and serves two goals: to support local Chinese carmakers who tend to build more cars with smaller engines than their western competitors, and to battle air pollution as smaller engines, in general, emit less pollutants.
The sky is not always blue in China but its local brands are certainly getting stronger; sales were up 27.6% to 634,000 cars in July, representing a market share of 39.6%.
The fastest growing segments are SUVs, up 57% to 628,000 units, and New Energy Vehicles, up an incredible 93% to 38,000. NEVs include electric vehicles and plug-in hybrid electric vehicles.
The rise of SUV is market-driven with compact SUVs being the most popular sub-segment. Chinese brands are profiting handsomely because they identified the opportunity first and they were able to develop and launch dozens of new vehicles in a relatively short time.
The segment is of vital importance for local car makers, with compact SUVs making up for more than half of their total sales.
Sales of NEVs are supported by generous government subsidies that can add up to 90,000 yuan or $13,530. Other perks include free parking spaces and free license plates.
The subsidies for NEVs are for Chinese brands only. They are aimed at supporting the local NEV industry, identified by the government as a growth sector, and at reducing air pollution. The policy appears to work.
Ever more Chinese brands are offering NEVs and their quality is improving fast, which in turn leads to more sales again.
