A shaky comeback

The German automakers are cheering: In China, the largest market in the world, things are looking up again. But how sustainable is the upswing?

Ready for export: new Mercedes-Benz cars in Bremerhaven.  (Archive image)

What does Li Shufu actually do? That the founder and CEO of the Chinese car maker Geely wants to take over the German Daimler group is a persistent rumor. Li already holds almost 10 percent of the well-known German company. He wanted to “deepen” the “cooperation” with the Stuttgarters, said the Chinese billionaire a few weeks ago.

Li presumably does not mean the majority takeover of Daimler, not even a large purchase of shares. Especially in March there was speculation about such a step: when the Daimler share cost only 22 euros on the stock exchange. The brand with the star would have been cheap for China. Meanwhile, the Daimler share is worth 13 euros more, an increase of a full 60 percent. Li Shufu now prefers to talk about an air taxi start-up from Bruchsal, in which he has invested together with the Stuttgart-based company. Many observers believe that the Chinese have the lofty dream of integrating Daimler into their realm. For now, however, the price is likely to be too high for him again.

Fear of a second wave in China

The comeback of the German group is mainly due to China. Dealers in the People’s Republic sold 70,000 Mercedes to customers in May. Only 135,000 were delivered to dealers worldwide that month. That was over a quarter less than a year earlier. In April the minus was even 44.5 percent. In China, however, growth in May was in the double-digit range. Now the Stuttgart want to invest reports reportedly in the course of the Chinese battery manufacturer Farasis in the new technology segment of the Shanghai stock exchange.

Volkswagen is even spending 2 billion euros to secure a future in the electric car business in China. The Wolfsburg-based company intends to increase its stake in their electric car joint venture JAC from 50 to 75 percent via a capital increase. The other part of the money also goes to a battery company in the country. With this, VW is strengthening its “electrification strategy in China”, CEO Herbert Diess was quoted as saying.

For the top manager, the sales figures from China are also almost the only positive news at the moment. The group delivered 330,300 cars in the country in May and can boast of having increased its market share to over a fifth. How VW is calculating is unclear – the growth of 6 percent is below that of the market, which, according to car associations, grew by 7 percent in the month for cars.

The fact that China, the world’s largest market, picked up again last month is a fact – and anything but taken for granted after sales in the country fell 80 percent year-on-year at the height of the epidemic in February. China is a role model, VW boss Diess had already cheered a month later.

The question, however, is how sustainable the upswing is. As early as the first week of June, car sales in China plummeted by 10 percent, according to the manufacturers’ association CPCA. Nothing was known about a new wave of the virus outbreak that shocked the Chinese over the weekend. Around 80 new cases discovered in Beijing have confirmed the fear of many people in the country that things could start again at any time with exit bans and plant closings.

The mass manufacturers are likely to suffer

Should the wave expand, the pent-up demand of car buyers might soon be over again. While China’s population sat at home for a month in the self-chosen or imposed quarantine, it had been shown that even sophisticated sales campaigns on the Internet did not replace a trip to the car dealership, even among the people of 850 million Internet users.

Mass manufacturers such as VW are likely to suffer more than luxury providers such as Daimler and the Munich-based BMW Group, which is doing similarly well in China. The premium segment there grew by 28 percent year-on-year in May, much faster than the market as a whole. According to observers, this has above all to do with the fact that China’s affluent middle and upper classes have been relatively little affected by the consequences of the virus crisis. Some economists estimate the number of unemployed at 100 million people. In addition, countless companies have significantly reduced their employees’ salaries. In surveys, concern about income ranks first.