Car sales in China fell 92% in the first half of February because of the coronavirus, with potential knock-on impacts for several UK listed companies.
According to industry trade body the China Passenger Car Association, nationwide car sales slumped 96% in the first week of February to a daily average of just 811 vehicles, with many dealerships closed while buyers stay away to prevent the spread of the virus.
Shares in car component makers or service providers like Johnson Matthey (JMAT), AB Dynamics (ABDP:AIM) and TT Electronics (TTG), all of whom have exposure to China, ticked between 1-2% lower this morning following the news.
Responding to the data, Warwick Business School professor Christian Stadler warned that if sales in China continue to slow, ‘we can expect to see growth within the global car industry grind to a halt’.
He said: ‘Car manufacturers have an even bigger concern on the supply side. Every car contains somewhere in the region of 30,000 different parts, many of which come from China.
‘Pressure will grow to find parts from elsewhere, but with a third of all car parts being manufactured in China, finding those parts or the capacity to make them elsewhere will be no easy task.’
Stadler also said that while China has become an increasingly important market for car manufacturers in recent years, growth had already started to slow along with the Chinese economy before the coronavirus outbreak.
The news could be bad for the likes of struggling luxury carmaker Aston Martin Lagonda (AML), which has expanded its presence in China as it looks for growth.
However, with its shares trading just 1% down at 419p and the muted share price reactions for other stocks exposed to the motor industry, it appears the market believes the fall in sales is only a short-term thing due to the virus outbreak.
AJ Bell investment director Russ Mould said the market as a whole seems to be ‘waking up’ to the impact on individual companies and the wider economy, with the realisation also that the SARS outbreak isn’t necessarily a good comparison.
He said: ‘Profit warnings linked to the health crisis, as companies are either hit by slowing consumer demand in China or impact on their supply chain, are starting to trickle out with the impact on iPhone sales revealed by Apple earlier this week the most high profile of these.
‘The warnings are also a reminder that the SARS outbreak in 2003 is not necessarily a good point of comparison with events in 2020, given China is now a larger economy with closer links to the rest of the world.’