Vroom vroom, screeeeeech! In a world of conflicting data here are some more, courtesy of carmakers. Most have unveiled stonking first-half results and bullish prognoses. Take Toyota. Despite a recall of close to 10m cars worldwide, the Japanese manufacturer is raising its full-year net profits forecast by 10 per cent to $4bn. But in China – the world’s biggest car market, and the source of much of western carmakers’ optimism – popular local manufacturer BYD is slashing sales estimates by a quarter.
It would be easy to dismiss BYD as a darling stock that got ahead of itself. It began life producing batteries in the tawdry boomtown of Shenzhen across the Hong Kong border, then branched out into electric cars. Drivers snapped up the motors – nearly half a million last year – and investors grabbed the stock. Warren Buffet bought a 10 per cent stake in 2008; at its peak last year BYD was worth some $25bn or more than four times sales. Last year BYD made a 20 per cent return on capital (for comparison, in a good year Toyota generates around 7 per cent).
But this is not just about BYD. The Chinese carmaker is simply saying what others prefer to keep quiet: China is not so different from developed markets after all. China’s strong first half mirrored every other country that benefited from government stimuli. Now these are being unwound, once-rapacious lenders are more circumspect, consumers less flush and car showrooms less frantic. BYD is not the only carmaker feeling the pinch: this week Ford of the US said its July sales were down 6 per cent year on year. Carmakers, accustomed to slashing production and prices in China, will be quick to adjust. Now that China accounts for a bigger slice of sales, however, they will find it tougher to deal with the subsequent margin erosion.