China’s car market posts its steepest sales fall in two years, with NEVs down 23% and BYD shedding 30% in Jan 2026. Discover the causes and future outlook. Read more now.
China’s auto market entered 2026 on a grim note. Domestic vehicle registrations fell by 19.5% in January, the sharpest decline in two years, according to the China Association of Automobile Manufacturers (CAAM). The slowdown is being felt across all segments, but the New Energy Vehicle (NEV) category—comprising pure‑electric (BEV) and plug‑in hybrid (PHEV) models—dropped an even steeper 22.9%.
Why the Numbers Are Falling
Several forces are converging to squeeze sales:
- Weaker government incentives. Recent revisions to the trade‑in subsidy program cut support for low‑priced models, which have traditionally driven volume.
- Consumer fatigue. The prolonged Lunar New Year holiday, now starting in mid‑February, shifted buying cycles but left overall demand muted.
- Economic headwinds. A sluggish property market and a cautious labour outlook have tightened household budgets.
- Stricter regulations. New safety standards for electric cars, including a ban on hidden throttle controls from 2027, have added compliance costs.
Impact on the Industry Leaders
Even the market champion BYD was not immune. January sales plunged 30%, outpacing the industry average. BYD’s export arm, however, helped offset the domestic slump—nearly half of its global volume in January came from overseas markets, and the company is eyeing a top‑spot in Brazil by 2030.
Geely is pursuing a different strategy, reportedly negotiating with Ford to use the U.S. automaker’s European manufacturing footprint for a joint‑venture that would serve the continent’s growing demand for affordable EVs.
What’s Next for Chinese Car Makers?
Analysts expect the overall market to tread water in 2026, with growth hovering around zero. To revive momentum, the Ministry of Commerce’s deputy minister, Thinh Thu Binh, pledged to fine‑tune the trade‑in policy and keep the incentives pipeline flowing. In 2025, nearly 11.5 million subsidised trade‑in transactions accounted for almost half of total sales, highlighting the importance of policy support.
Manufacturers are also extending financing terms—some offering up to eight‑year payment plans—to ease the financial burden on buyers. Meanwhile, the export side of the NEV business is booming, more than doubling year‑on‑year, providing a crucial buffer against the domestic slowdown.
Bottom Line
The Chinese auto sector faces a perfect storm of reduced subsidies, tighter regulations, and a cautious consumer base. While domestic sales are contracting, the aggressive push into overseas markets and strategic partnerships may keep the industry afloat. Stakeholders will be watching closely to see whether policy adjustments can reignite demand or if the market will settle into a prolonged period of stagnation.