18 September 2018

Fat margins driving more players to SUV market

Sport utility vehicles (SUV) are the fastest-growing segment in China’s car market. While major players are planning new models to sustain their sales growth, new entrants are gearing up for a piece of the action.

A recent survey by the China Passenger Car Association found that SUV sales rose 70.3 percent in October. 

Market leader Great Wall Motor (02333.HK), which sold 37,600 SUVs last month, will launch two new models — H8 and H2 — to expand its Harvard series. Some analysts expect SUV sales to reach 760,000 and 880,000 units in 2013 and 2014, respectively.

Rival Geely Automotive (00175.HK) said it sold 7,436 SUVs in October.

Chinese consumers love SUVs for their all-terrain design and roomy interior. The vehicles are favored for weekend outdoor activities and are sometimes used as a second car.

Manufacturers swear by them because of their lucrative margins compared with other vehicles such as sedan and compacts, Securities Times reports.

It’s no surprise that Changan Automobile (000625.CN), BYD Co (01211.HK) and FAW CAR Co. (000800.CN) are reported to be planning SUV launches next year.

With stiffer competition on the horizon, Great Wall Motor is leaving nothing to chance. It’s planning to introduce a watered-down SUV version at cheaper prices, China Daily quoted Guotai Junan Securities auto analyst Zhang Xin as saying.

Domestic brands have been focusing on low to mid-range products but as consumers’ purchasing power grows, indigenous players need to upgrade their product line to attract customers that care more about performance than price.

That is where premium brands such as BMW, Audi and Land Rover are ahead of the curve.

Chinese carmakers need to put more resources into their research and development (R&D) programs in order to catch up.

Great Wall Motor, for instance, invests just 2.2 percent of sales in R&D, a small amount which is easily dwarfed by the R&D spending of their foreign rivals.

– Contact the writer at [email protected]



EJI Weekly Newsletter

Please click here to unsubscribe