Chinese Auto Stocks Rise on Phase One Deal on Trade

After reports of some movement on trade, multiple Chinese auto stocks ended the week in the green.
Anthony RussoDec 14,2019,00:58

Multiple Chinese listed Wall Street auto stocks received a boost on Friday, following the United States and China coming to terms in principle on phase one of a trade deal.

Under the agreement, the U.S. has offered to reduce tariffs by 50% on $375 billion in Chinese products, Reuters reported yesterday after the markets closed. It is also looking to postpone the tariffs on $160 in Chinese goods, scheduled to take effect on Sunday, the report said.

Today's news led to positive market trends in some U.S.-listed Chinese car providers, but Thomas Moga, a senior counsel at the Detroit-based law firm, Dykema Gossett said upward movements doesn't just reflect the auto industry.

"I think it's an underline question of confidence of the Chinese consumer in their economic future. I think that's what has rattled the Chinese buyer more than auto specifically and the tariff war. The economy is shaken, because its largely exploit driven and it has a huge impact on the Chinese mindset, Moga told CapitalWatch in a phone call on Friday afternoon.

He added on the auto market in China, "When we see this promise to the return of economic stability on the Chinese side it's going to brighten up everything, including the auto. So I do think it's a positive. But I don't think its singling out the autos.

For November, auto sales sunk 5% compared with the same month last year, the Chicago Tribune reported on Monday. Moga said the trade war agreement will help, but thinks the Chinese car consumers will take a while to regain confidence in the general market.

However, the used car sector has seen some growth in the third quarter. In September, used car sales rose 7% to 1.31 million units, as reported by state media Xinhua.

"I sense that the use car market and you see the in the U.S. too, has to pick up when the economy hits a speed bump. That's what happened in China, you got people who need vehicles perhaps they've held on as long as they can to their 12 year old car. But they don't have the actual dollars right now or are not confident in spending right now. When they do they'll look for a less expensive market. It'll still fill the need of having a car," Moga told CapitalWatch

Thanks to the trade war deal and the current state of the used car market, auto dealer Uxin Ltd. (Nasdaq UXIN) stock leaped 7% to $2.91 per ADS on Friday's close. Some other Chinese-based auto stocks, listed on Wall Street, also had some boosts. The polymer composite materials manufacturer for automotives, China XD Plastics Company Ltd. (Nasdaq: CXDC) soared nearly 9%, at $1.85 per share and brake system manufacturer and SORL Auto Parts, Inc. (Nasdaq: SORL) rose 1% to $4.45 apiece.

Taking the biggest in sales from November were electric and gasoline-electric hybrids, which tumbled 44% as a result of the scaling back of EV subsidies by Beijing earlier this year. While the EV sales will rebound, auto consumers will continue to purchase used cars, because it's the safer way to go in the meantime, as noted by Moga.

"We've seen the turn down in auto sales generally. The more traditional auto marketers have substantially reduced their asking price for their vehicles," Moga told said.

He added on the caution Chinese auto consumers have shown in the market, "Its real clear that they're not comfortable yet, they aren't confident and that's because they know the Chinese government has problems with the electrical property systems. It's going to be very difficult to work on some of these problems that should have been addressed long ago. I think there's going to be a lot more caution."

Shares were also up in some electric car companies today, as EV maker Nio inc. (NYSE: NIO) soared 5% to $2.39 per ADS and its rival Kandi Technologies Group, Inc. (Nasdaq: KNDI) traded up 20 cents higher, at $5.04 apiece on Friday.

Some other notable Chinese stocks that displayed strong movement in the markets today were China Ceramics Co., Ltd., (Nasdaq: CCCL) which skyrocketed nearly 33% to $1.06 per ADS and artificial intelligence company  Laix Inc., (NYSE: LAIX) propelled 18% to $3.32 apiece.