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China''s Car Parc to Exceed 500 Million – But Investors Should Keep Expectations Within Reason

Date:10-27 08:51 Source:未知 Authour:中商汽车

The Chinese auto venture capital industry is taking off. Frank Gong, former managing director of JPMorgan Asia Pacific and chairman of China Investment Bank, said at the first China Auto Venture Capital Summit on August 25 that "The capital market is paying close attention to new entrants like Tesla, and automobiles have even better prospects in China than the iphone does."

At present, China has a car parc of 125 million units, which means that less than 10% of its 1.4-billion population own a car, while in the US the corresponding figure is 70%. Frank Gong works on the premise that by the time the Chinese population reaches 1.5 billion, 1/3 of them will be car owners, meaning that China's car parc will exceed 500 million units.

"China sold more than 23 million cars in 2014, but the market will not be saturated until sales reach 40 million. Assuming that the future saturation point will be 500 million, and allowing for an annual elimination rate of 8%, then 40 million cars will have to be sold to maintain the car parc even if the overall number doesn't increase." According to Gong, the Chinese market holds tremendous potential. The key is how to unleash it.

New initiatives, technologies and ideas, represented by mobile connectivity, are fuelling a new round of investment enthusiasm in the traditional auto industry. Technological progress and industrial integration have blurred the boundaries between different industries, and the auto industry is giving rise to a spreading industrial chain in the fields of manufacturing, circulation and traffic. This incorporates elements such as the Internet of Vehicles, smart driving, new energy, used cars, O2O service, auto e-commerce and auto sharing.

According to Wang Xia, head of the Automotive Industry Committee of China Council for the Promotion of International Trade (CCPIT), "New technologies are pushing the auto industry from a twilight industry to a rising industry. The whole industry is going through profound integration and restructuring as a result of new technology."

According to data shared by Cao Guowei, chairman and CEO of Sina, 10,000 innovative startup companies are launched in China every single day, and more than 150 of the 1,756 investment milestones in the capital market in 2014 involved the auto industry, making up nearly 10% of that total.

Cao said that of the 80 companies which received injections of capital and are covered by the 2014 Auto Investment & Financing Report, 36 are engaged in the traffic sector, representing 45%, while 30% are engaged in the auto service market and used car market. Generally speaking, investment and financing in the auto industry is still in its early stages, when angle investment and A-round financing account for 80%.

He also pointed out that auto venture projects are faced with a range of challenges, such as user base and loyalty. For instance, fierce competition results in service homogeneity, a profitability model is either opaque or non-existent, auto venture projects have too many assets, and both upstream and downstream resources have to be mobilized along the long auto industrial chain.

Wang Xia noted that business models such as auto e-commerce which emerge on the basis of Internet technology have developed at such a fast pace, and exert such extensive influence, that they are already ahead of their counterparts in Europe, the US, Japan, South Korea and other countries and regions. But they also face bigger risks. He advised auto industry investors to proceed with caution, adopt a long-term vision, and keep expectations within reason.

"Not every initiative will turn out successful. Auto ventures have to be supported by the macro economy and the general industrial environment, and the attributes of the auto industry as a manufacturing industry won't be fundamentally changed simply by the introduction of new models. We have to keep in alignment with the construction of an auto society, with consumer needs, and with the venturers' wishes. Consumer demand and the application of Internet technologies in the traditional auto industry have provided auto venturers with double opportunities," said Wang Xia.

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