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China Likely to Propose 50% Tax Cut on Cars: Will Autos Gain?
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Per Bloomberg, China’s top economic planning body is considering halving the tax charged on car purchases. Following the report, auto stocks gained ground on Monday. Automakers have been feeling the heat of the trade war between the United States and China for quite some time now.
China is one of the biggest car markets. However, the market is expected to decline for the first time this year in almost three decades, as a result of consumer confidence taking a hit owing to trade war fears and the end of years of robust economic growth. Understandably, news of China considering making massive tax cuts on car purchases is definitely going to bring a sigh of relief for automakers.
China Plans to Half Tax on Car Purchases
On Monday, shares of Ford Motor Company (F - Free Report) , General Motors (GM - Free Report) and Tesla, Inc. (TSLA - Free Report) jumped 3.3%, 1.5% and 1.2%, respectively, following reports of China considering cutting tax on cars purchases by half. China’s top economic planning body is proposing to cut tax to 5% from 10% on cars with engines no bigger than 1.6 liters, which accounts for around 70% of total passenger car sales, per Bloomberg, citing people familiar with the matter.
Understandably, the proposed tax cut comes with the aim of supporting China’s auto industry as the ongoing trade war with the United States has raised fears of the economy slowing, a factor which is also impacting the demand for cars.
China’s car market is expected to decline this year for the first time since 1990, as a result of consumer confidence taking a hit owing to fears of trade war. The government had earlier taken a similar step in September 2015 after sales of car declined between June and August.
Can Automakers Breathe Easy?
If true, this development will bring a sigh of relief to automakers. Automakers have been bearing the brunt of tit-for-tat tariffs for a while now. U.S. auto sales fell 4% in the third-quarter. Also, auto sales declined 7% in September on a year-over-year basis.
Demand for passenger cars has been slowing in the United States despite robust employment opportunities and high income. Understandably, trade war fears have been denting the confidence of both consumers and automakers. General Motors’ China sales fell for the first time in the third quarter in over a year. The automaker sold 835,934 vehicles in the third quarter ended September, declining 14.9% from the year-ago period.
On Oct 24, Ford reported a drop in third-quarter profits on weak China sales. The company’s overseas divisions remained pressured in the third quarter, with Asia Pacific suffering an operating loss of $208 million owing a steep drop in Chinese car sales. Tesla sports a Zacks Rank #1 (Strong Buy), while General Motors and Ford each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Motors is presently the second-largest automobile manufacturer in China and has been constantly investing and expanding its plants in China. Fiat Chrysler Automobiles N.V. and Ford too are trying to fast catch up by expanding in China. Also, Tesla in July said that it plans to open its first production unit in Shanghai.
Price Performance in the Last 3-Month Period
A number of U.S. automakers have been expanding their operations in China in order to capture the world’s fastest-growing car market. However, trade war has been impacting vehicles sales of U.S. automakers in China. News of China considering to half the tax on passenger cars definitely will give the much-needed boost to the confidence of automakers.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
China Likely to Propose 50% Tax Cut on Cars: Will Autos Gain?
Per Bloomberg, China’s top economic planning body is considering halving the tax charged on car purchases. Following the report, auto stocks gained ground on Monday. Automakers have been feeling the heat of the trade war between the United States and China for quite some time now.
China is one of the biggest car markets. However, the market is expected to decline for the first time this year in almost three decades, as a result of consumer confidence taking a hit owing to trade war fears and the end of years of robust economic growth. Understandably, news of China considering making massive tax cuts on car purchases is definitely going to bring a sigh of relief for automakers.
China Plans to Half Tax on Car Purchases
On Monday, shares of Ford Motor Company (F - Free Report) , General Motors (GM - Free Report) and Tesla, Inc. (TSLA - Free Report) jumped 3.3%, 1.5% and 1.2%, respectively, following reports of China considering cutting tax on cars purchases by half. China’s top economic planning body is proposing to cut tax to 5% from 10% on cars with engines no bigger than 1.6 liters, which accounts for around 70% of total passenger car sales, per Bloomberg, citing people familiar with the matter.
Understandably, the proposed tax cut comes with the aim of supporting China’s auto industry as the ongoing trade war with the United States has raised fears of the economy slowing, a factor which is also impacting the demand for cars.
China’s car market is expected to decline this year for the first time since 1990, as a result of consumer confidence taking a hit owing to fears of trade war. The government had earlier taken a similar step in September 2015 after sales of car declined between June and August.
Can Automakers Breathe Easy?
If true, this development will bring a sigh of relief to automakers. Automakers have been bearing the brunt of tit-for-tat tariffs for a while now. U.S. auto sales fell 4% in the third-quarter. Also, auto sales declined 7% in September on a year-over-year basis.
Demand for passenger cars has been slowing in the United States despite robust employment opportunities and high income. Understandably, trade war fears have been denting the confidence of both consumers and automakers. General Motors’ China sales fell for the first time in the third quarter in over a year. The automaker sold 835,934 vehicles in the third quarter ended September, declining 14.9% from the year-ago period.
On Oct 24, Ford reported a drop in third-quarter profits on weak China sales. The company’s overseas divisions remained pressured in the third quarter, with Asia Pacific suffering an operating loss of $208 million owing a steep drop in Chinese car sales. Tesla sports a Zacks Rank #1 (Strong Buy), while General Motors and Ford each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Motors is presently the second-largest automobile manufacturer in China and has been constantly investing and expanding its plants in China. Fiat Chrysler Automobiles N.V. and Ford too are trying to fast catch up by expanding in China. Also, Tesla in July said that it plans to open its first production unit in Shanghai.
Price Performance in the Last 3-Month Period
A number of U.S. automakers have been expanding their operations in China in order to capture the world’s fastest-growing car market. However, trade war has been impacting vehicles sales of U.S. automakers in China. News of China considering to half the tax on passenger cars definitely will give the much-needed boost to the confidence of automakers.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>