Car Boom Changes Chinese Lifestyle, Porsche Moving In - One Stock to Play

We mentioned earlier this month how China's car sales had surged on the back of generous government incentives and indeed has now passed the U.S. as the largest car market in the world. [Jun 9, 2009: China Car Sales Jump 47% Year over Year on Subsidies] This has as much to do with their growing as our coincident shrinking. I put together a few pieces together below on the Chinese auto market, and in my quest to find new stock ideas offered a quick summary of one of a handful of ways to play the Chinese auto market through US stocks.

First, Porsche says China to Pass Germany as its #2 Market within 3 Years

• Porsche SE said China may pass Germany as its second-biggest market within three years on rising wages and demand for the $260,000 Panamera sports sedan.
  
• “All premier manufacturers are showing good results” in China, Helmut Broeker, Porsche’s China head, said in a June 12 interview in Shanghai. The country was Porsche’s third-biggest market last year, up from about 15th in 2006.
• The Stuttgart, Germany-based carmaker sold 8,371 vehicles in China last year, compared with about 14,000 in Germany. Sales in the U.S., the company’s biggest market, were about 35,000.
• This year, the company’s U.S. sales fell 27 percent in the first quarter, and U.K. sales sank 36 percent, as the global recession and credit crunch triggered job losses in banking and other industries.
• Porsche plans to add more dealers in China and shift its local office to Shanghai, the country’s financial capital, to help boost sales. Audi AG, Jaguar Land Rover and Daimler AG’s Mercedes-Benz are also aiming to offset tumbling demand in Europe and the U.S. by selling more cars in China, home to 825,000 people worth 10 million yuan ($1.5 million) or more.
• “China is the hope for luxury carmakers like Porsche,” said Han Weiqi, an analyst with CSC Securities HK Ltd. in Shanghai. “Even during the current financial crisis, China’s rich are obviously less affected than those in U.S. and Europe.”

• Porsche has secured more than 100 orders for the Panamera, its first new model line in seven years, in mainland China and another 100 in Hong Kong, said Broeker. Hong Kong orders could reach as many as 200 before the car enters the market in September, he added. Mainland orders my hit 600 by the time deliveries begin in December or January, he said.
• The family-size Panamera costs from 1.8 million yuan in China. Porsche unveiled the car at the Shanghai auto show in April, the first time it debuted a new model outside of Europe or North America.
• Chinese vehicle sales have surged 14 percent this year, compared with a 37 drop in the U.S., as a 4 trillion yuan stimulus package revives growth in the world’s third-biggest economy. Porsche boosted sales 3 percent in the first five months to 3,174. That included 900 vehicles in May, a 44 percent increase from a year earlier. In China, Daimler posted a 30 percent increase in Mercedes car sales in the first quarter, while BMW’s sales rose 14 percent.
• Porsche, which entered the China market in 2001, plans to raise its number of dealers in the country to as many as 38 from 25 by 2010, Broeker said. The automaker sells the Boxster, Cayman, 911 and Cayenne in the country.

Second, via USA Today: China Car Sales Boom, Reshaping a Way of Life

• "We never used to have traffic jams," sighs Song Wenjun, 63, who founded the local brewery. Song says just a year ago, his chauffeur-driven Buick moved easily through the city of 60,000 (Qufu), hindered only by its four stoplights. Now, he says, there are more than 20 lights and the roads are packed.
• China's love affair with the automobile is thriving despite the global recession, and it's changing the way people live here in ways reminiscent of the USA's boom in car ownership after World War II. Song's story helps explain why: His Sun King brewery has struggled lately, but its workers are still confident enough about their future to buy cars that are becoming increasingly reliable, safe and cheap — often less than $6,000 for a basic, new model.
  
• Song says more than 100 of the brewery's 2,000 employees have recently purchased their first cars, joining millions of other Chinese who, for the first time, are able to enjoy a middle-class lifestyle comparable to many Americans.
• China is on track to sell 11 million vehicles this year, according to the China Passenger Car Association. That would be up 17% from 2008, and a stunning 20 times the number of vehicles sold in China just a decade ago.
• China's 1.3 billion people "are simply wild about cars," says Michael Dunne, a Shanghai-based managing director of J.D. Power and Associates, an auto industry group. He says the surprising strength of China's auto market has been driven not just by economics, but also by a kind of psychological shift that has come with prosperity. "There is the thrill of individual mobility, going from point A to point B in their own time, and on their own terms. But it's also an opportunity to declare and project their own success," Dunne says. (probably a hard thing to understand here, where we take autos for granted)
• Xu Meng is a typical Chinese car owner, starting to explore his own country. He and his wife were engaged in that classic roadside ritual — checking their map to make sure they weren't lost — at a rest stop in Cangzhou, 140 miles from Beijing. It was the farthest they had ever driven from home, he says.
• The eight-lane Jingjin Expressway leading south out of Beijing, which opened last July just before the Beijing Olympics, is part of a network of 30,000 miles of new roads planned this decade. It's the biggest such expansion seen anywhere since President Eisenhower commissioned the U.S. interstate system in 1956. U.S.-style suburbs, where cars are a virtual necessity, are sprouting everywhere. Cross-country road trips are the rage, as Beijing residents venture out to see sights such as the Great Wall or Confucius' Temple here.
• China has one-seventh as many autos on the road as the USA, Dunne estimates, but nearly twice as many traffic deaths — 73,484 last year, according to the Chinese government.
• The sudden burst of car ownership is grating to some people in a country that is still officially communist, despite massive economic changes since the 1980s. "Chinese society is unfair now, as some can afford cars and some cannot," says Liu Dongming, 41, a police officer who still wears a pin in honor of Chairman Mao Zedong, a former hard-line Chinese ruler.
• Auto companies gradually are learning to cater to Chinese tastes. One discovery: the small, fuel-efficient models that are best sellers in Europe and Japan don't do as well here. "Both Chinese and American people like to buy big, luxurious cars," says Zhong Shi, an auto analyst in Shanghai. "It's a symbol they dream of achieving. In China, where cars are less widespread, they are even more of a decoration, to display wealth." That's one reason why American auto companies have done relatively well here.
• GM and other foreign companies have successfully targeted the midsize and high-end part of the Chinese market, leaving the low-cost, low-margin segment largely to Chinese automakers.
• Chinese automakers are making inroads, though, slowly shedding a reputation that their cars aren't as safe as foreign ones. At the Shanghai Auto Show in April, Lin Chen, 28, tested the seats of a Chery Riich M1, which costs $6,270 to $8,800. "I didn't trust Chinese cars' safety before, but I think they have matured, and the price is very reasonable," Lin says.
• Despite such efforts, it could be years before Chinese cars overtake Western models, says Zhong, the auto analyst. "Right now, everybody usually buys Chinese cars not for quality, exterior or prestige, but only because the price is cheap," he says.
• ... more than 85% of the adult population still does not own a car. It's still too expensive, but cities such as Shanghai are preparing for an onslaught, building new ring roads and avenues to handle the traffic.
• Patrick Zhou, 25, says the possibilities are endless. He's a sales assistant for BYD (Build Your Dreams), an auto and battery company partly owned by Warren Buffett that is trying to break into the hybrid car market here. "In the U.S., the focus of companies is on how to save themselves," Zhou says. "Here in China, the market is great!"

There are actually quite a few companies to play the auto theme in China that are listed in the U.S. - but as with everything, most all Chinese stocks move in one big morass as HAL9000 decides they are right to buy or not. I pulled one here Wonder Auto Technology (WATG) because it had a large move yesterday that caught my eye, and as I looked at the chart it is in the midst of an enormous run, and shows the type of strength you wish to see. Now could it be too late to chase it? Sure - but you could of said that $5 ago... as long as it keeps holding that blue squiggly line (20 day moving average) it appears in good shape.

The last earnings report for Wonder Auto can be found here, and even with yesterday's 16% move the market cap is $260M. Valuation means little as its now trading at 12x 2009 estimates while a day earlier it was 10x and 3 months ago it was somewhere under 3x. So I suppose it could go to 25x if the computers want it there.

No position