China’s Biggest Auto Maker Reports Rise in 1H Revenue & Profit

Thanks to purchase tax reduction on small-engine vehicles, which account for more than two-thirds of new-car sales in the country. However tax break ends Dec 2016 creates uncertainties

SHANGHAI— SAIC Motor Corp., China’s biggest auto maker by sales, reported Wednesday that first-half net profit rose 6% from a year earlier, driven by a tax break that encourages small-car purchases.

The Shanghai-based company, which produces cars with Volkswagen AG and General Motors Co., said net profit for the six months ended June 30 rose to 15.1 billion yuan, or about $2.3 billion, from 14.2 billion yuan in the year-earlier period. Revenue rose 8.5% to 351 billion yuan.

The profit growth is higher than the 4.4% rise the company posted in the year-earlier period, when drastic ups and downs in the domestic stock market disrupted purchases of big-ticket items, such as cars.

Last September Beijing halved the purchase tax on small-engine vehicles, which account for more than two-thirds of new-car sales in the country, to rejuvenate the industry.

The incentive has had the desired effect. In the first half of this year, auto makers sold 11 million cars in China, up 9% from a year earlier. Over the same period, SAIC and its foreign partners sold three million cars and commercial vehicles, up 4.9% from a year earlier.

“The market is more volatile. The competition, obviously, from a price perspective, is stepping up,” GM Chief Financial Officer Charles Stevens told analysts on a conference call in July when talking about China.

Volkswagen’s China President Jochem Heizmann said at a recent briefing that he was “more unsure as to what will happen next year,” as China’s tax break has pulled future demand forward. The tax break will expire by the end of this year.

China has been the biggest market for both Volkswagen and GM. – Article published on WSJ

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