One Billion Customers in China?
Estimation of Passenger Car Demand for
Year 2030
Discussion Document: Shanghai Volkswagen 上海大众
S pecific
M easurable
Achievable
R elevant
T imeline based
Agenda
• Objective
• Model of Replacement Customers
• Model of 1st Time Customers
• Estimation
• Implications
• Appendixes
Estimation of China Passenger Car Demand by SMART 2
SMART estimates passenger car demand in China for year
2030
• Analyze historical dataset from 1999 to 2007
• Do not consider
– Segments
– Regions
– Supply (technology, competition)
Estimation of China Passenger Car Demand by SMART 3
Dataset breaks down as 1st time and replacement
customers, where replacement model is time series linear
• 10-year write-off is defined by regulation
• Auto insurance companies assume average 10-year write-
off and 90% replacement rate in China market
• Total year n = Replacement year n + New year n
– Replacement year n = 90% x Total year n-10
– New year n = 1st Time Customers Model year n
Estimation of China Passenger Car Demand by SMART 4
Year 2000 2010 2020
1st Time
ReplacementTotal90%
90%
Influence chart indicates potential drivers for 1st time
customers demand
Estimation of China Passenger Car Demand by SMART 5
Demand Consumer
Substitute
Complement
-
+
+
Public
TransportationMotorcycle
Bicycle
Road
Highway Gasoline
Insurance
Household
Income
Urban
Population
+
+
-
-
+
+
Cars are not
necessities at
current stage
+
+
+
SMART analyzes potential drivers and remove weak one,
e.g. fuel oil price
Fuel oil price has very weak
correlation with car sales
Pearson = 0.2573105
Fuel oil has weak correlation
with gasoline in China
Pearson = 0.4063604
Estimation of China Passenger Car Demand by SMART 6
Source: Bloomberg
-
100
200
300
400
500
600
700
800
900
1,000
- 500 1,000
Car
Sa
les
(K
Un
it)
Fuel Oil Price (USD)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
- 500 1,000
Ga
so
lin
e P
ric
e (
RM
B)
Fuel Oil Price (USD)
Multiple regression model (square root) explains 99.4%
historical car sales
Estimation of China Passenger Car Demand by SMART 7
Source: CSB
0
1,000
2,000
3,000
4,000
5,000
6,000
Actual Car Sales (K Unit) Model Prediction (K Unit)
0
20
40
60
80
100
120
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
Highway (K KM) Forecast (K KM)
SMART forecasts drivers, e.g. time series square root
model for highway length
Estimation of China Passenger Car Demand by SMART 8
Forecast meets
government plan:
85K KM in 2022
Source: CSB, http://www.gov.cn/ztzl/2005-09/16/content_64418.htm
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,0001999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
Car/Urban Capita% Actual Car Sales (K Unit) Model Prediction (K Unit)
Multiple regression model predicts demand of 1st time
customers
Estimation of China Passenger Car Demand by SMART 9
Source: CSB
Threshold of Mature Stage
Penetration Rate
0
5,000
10,000
15,000
20,000
25,000
Replacement Est. (K Unit) 1st Time Customer Est. (K Unit)
Actual Car Sales (K Unit) Car Sales Est. (K Unit)
SMART estimates passenger car demand in China for year
2030
Estimation of China Passenger Car Demand by SMART 10
≈ 20M
≈ 12M
Source: CSB
≈ 8M
2007 2022 2024
≈ 6M
Estimation identifies managerial implications
• Demand will increase to 20M in year 2030
– Investing China today will bring SVW significant financial return
• Customers behaviors will change around year 2022
– SVW could consider developing new products for replacement
customers
• Household income is the most significant driver in short-
term
– Small cities also have business opportunity for SVW
Estimation of China Passenger Car Demand by SMART 11
Appendixes
Estimation of China Passenger Car Demand by SMART 12
S pecific
M easurable
Achievable
R elevant
T imeline based
Passenger car sales pushes up China gasoline price
Estimation of China Passenger Car Demand by SMART 13
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
- 200 400 600 800 1,000
Ga
so
lin
e P
ric
e (
RM
B)
Car Sales (K Unit)
Source: Bloomberg
Insurance premium is not a driver for passenger car sales
Estimation of China Passenger Car Demand by SMART 14
Source: CSB
-
1
2
3
4
5
6
7
8
9
10
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Possesion of Passenger Cars (K) Average Premium (K RMB)
Road length is too volatile to be a strong driver
Estimation of China Passenger Car Demand by SMART 15
Source: CSB
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
Road Length (K KM) Linear (Road Length (K KM))
Tornado sensitivity chart indicates household income is
the most critical driver
Estimation of China Passenger Car Demand by SMART 16
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Household Income
Urban Population
Highway Length
Minus Plus
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Household Income (RMB) Forecast (RMB)
Time series S-Shape model forecasts household income
Estimation of China Passenger Car Demand by SMART 17
Source: Bloomberg
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
Population (K People) Forecast (K People)
Time series square root model forecasts urban
population, while government plan indicates same trend
Estimation of China Passenger Car Demand by SMART 18
Forecast
meets 2010
goal 50%
Forecast
meets 2020
goal 60%
Source: CSB, http://www.chinabgao.com/reports/65327.html
USA historical dataset indicates 48% is start point for
mature stage
Estimation of China Passenger Car Demand by SMART 19
Source: US Department of Transportation
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Increase YoY% Motor/Capita%
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