Volkswagen’s Audi is abandoning plans to sell 600,000 cars in China after tepid demand in the market, it was announced today.

This comes after China recorded a 3.4% monthly year-on-year drop in new-car sales in June, its first decline in more than two years. China’s Automakers Association also cut its 2015 forecast for vehicle sales growth to a meager 3 percent last week, as a volatile stock market affected sales to consumers concerned about the slowing economy.

This slow in growth will come as a blow to Volkswagen, who generate about 37% of its group unit sales in China. Associate earnings from its China joint venture alone accounted for more than 35% of the group’s pretax profit, Morgan Stanley estimates.

Volkswagen opened 1.8% higher this morning after EU car registration data showed its biggest gain in 5 years; however, it then fell over 2.6% into negative figures in 4 mins. It has since steadily gained 2.7%.

This slowdown in China is likely to have knock on effects for the European auto market. Shares in BMW were also hit this week after its Chinese joint venture, Brilliance China Automotive, warned that profit would fall by 40% in the first half from a year earlier.

The auto market could well have an effect on China’s oil prices; their implied oil demand grew 3.5 percent in June, as rising air travel and vehicle usage boosted fuel consumption. However, a drop in passenger car sales and a recent stock market slump could limit demand growth over the next few months.


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