SHANGHAI -- After declining for 16 straight months, light-vehicle output in China grew in November, the China Association of Automobile Manufacturers said this week.
Encouraging as it is, the development may not offer much relief for carmakers for two main reasons.
First, vehicle demand in China remains subdued.
While production showed a modest recovery in November -- rising 1.9 percent from a year earlier to top 2.16 million -- light-vehicle demand did not. Sales contracted for the 17th consecutive month, dropping 5.4 percent to below 2.06 million.
With output exceeding consumer demand, dealerships saw their stockpiles rise to a 45-day supply, on average, last month from 42 days in October, according to the China Automobile Dealers Association.
Rising production cannot be sustained unless vehicle demand picks up to match supply.
How soon demand will recover remains unknown, as it largely depends on the performance of the economy.
The general view held by economists is that if China cannot resolve trade disputes with the United States, economic growth will slide to below 6 percent in 2020, from 6.2 percent in the first three quarters of this year.
The International Monetary Fund predicted last month that the Chinese economy will grow only 5.8 percent next year.
The second reason is that carmakers face intensifying regulatory pressure to expand electrified vehicle output.
Beijing’s new carbon credit program, which became effective at the start of the year, is essentially a quota system. It stipulates passenger-vehicle manufacturers must earn one carbon credit for every 100 vehicles they produce. Carmakers can build plug-in hybrids to earn two credits per vehicle or EVs to obtain two to five credits per vehicle, depending on its range.
The program requires carmakers to earn credits tantamount to 10 percent of their annual output in 2019. For 2020, the rate is set to increase to 12 percent.
In contrast to Beijing’s fervor in driving electrification, genuine consumer interest in EVs or plug-ins has yet to materialize.
After a steep cut in subsidies in late June, electrified vehicle sales have plunged for five months in a row.
The year 2020, a little more than two weeks away, is more likely to be another stressful stretch for carmakers operating in China than not.