BMI View : We remain bearish on the domestic Taiwanese auto market as poor consumer sentiment and weak manufacturing orders will weigh on passenger car and CV sales respectively. However, the increasing focus of domestic carmakers on exports to overseas markets will help to support domestic auto production.
According to the Taiwan Transportation Vehicle Manufacturers Association (TTVMA), 2013 domestic vehicle sales came in at 258,753 units, a decline of 4.2%. The contraction in the market was more than our forecast for a 2.2% decline, due to the eye-watering 19.8% fall in commercial vehicle (CV) sales.
We retain our bearish view on the market. We forecast CV sales to extend their decline in 2014 and contract 3.1%, to 45,500 units. Also, while domestic passenger car sales eked out marginal growth of 0.1% in 2013, we expect the segment to contract in 2014 by 1.8%, to 208,000 units. This will then bring our total domestic 2014 auto sales growth forecast to -2.0%, to 253,500 units.
|Tough 2014 Ahead|
|Taiwan - Domestic Auto Sales, Units (LHS); % chg y-o-y (RHS)|
Going forward, CV demand will continue to remain weak as manufacturers struggle from softening export orders ( see 'Export Orders Softening In Line With Our Expectations', December 30 2013). As business conditions for corporates worsen, we see no catalyst currently, which could reverse the slump in the CV sector.
Furthermore, while our Country Risk team expects a slight acceleration in GDP growth in 2014 to 3.1%, from 2.1% in 2013, private consumption growth is expected to remain weak at 1.9%. As we do not see the embattled consumer loosening the purse strings, demand for durables such as passenger cars is likely to remain weak. January's 18.6% y-o-y (y-o-y) decline in domestic passenger car sales, to 26,568 units, lends credence to our view.
Car Exports Will Support Auto Production
While total domestic auto production declined 0.1% in 2013, to 338,720 units, it is important to note that the fall in output was much less than the contraction in domestic sales. This was due to strong passenger car production, which grew 4.7%, to 291,037 units. We expect this segment to remain a bright spot in 2014, as Taiwanese carmakers increasingly focus on exporting their cars to overseas markets.
|Likely To Grow|
|Taiwan - Vehicle Exports, Units (LHS); % chg y-o-y (RHS)|
The accompanying chart highlights the growth in vehicle exports over the years. Though it has remained volatile, we expect the broad trend of rising exports to remain intact over the coming years.
Although we forecast output to decline 0.1% in 2014, to 337,000 units, it is due to our downbeat outlook for CV production, which is largely dependent on domestic demand. On the other hand, passenger car production, according to our forecast, will experience 0.4% growth in 2014 as exports to other markets increase.