China's Car Market Stalls Even as Global Demand Keeps Growing
By Felicity Bradstock - Aug 02, 2026, 2:00 PM CDT
- China’s passenger vehicle sales are on track for their steepest decline since 2021 as higher fuel costs, weaker consumer demand, and reduced EV subsidies weigh on the market.
- Chinese automakers including BYD, Geely, and Leapmotor continue to strengthen their international presence despite weaker domestic sales.
- Mexico has become a major growth market for Chinese vehicle brands, although higher inventories and trade policies could slow future sales growth.
China’s domestic car sales have fallen significantly this year; however, sales of Chinese cars have risen substantially in some international markets, such as Mexico, demonstrating the growing global demand for Chinese-made vehicles. This demand growth has been driven by the launch of a wide range of affordable and competitive Chinese electric vehicles (EVs) from companies such as Build Your Dreams (BYD).
China’s car market could experience its worst year since 2021, based on recent low consumer demand, compared to the record-high sales of 2025. Passenger vehicle sales decreased by 20.2 per cent in the first half of 2026, which led the China Passenger Car Association (CPCA) to revise its 2026 full-year retail sales projection downwards to a decline of 14 per cent. It had previously predicted flat year-on-year sales from 2025 to 2026. The CPCA anticipates a final delivery volume of 20.4 million units by the end of the year, from a record 23.7 million units in 2025. Cumulative 2026 sales currently total 8.7 million units.
Meanwhile, the head of Hong Kong/China Industrials Research at Citic CLSA, Xiao Feng, expects sales to fall even further this year, by around 20 per cent year on year. Feng expects the sales of new electric and hybrid vehicles to decrease significantly less, at between 5 and 6 per cent year on year for NEVS. Sino Auto Insights founder Tu Le told the news outlet CNBC that “this is going to continue to be a brutal year.”
Several factors have contributed to the sales decline, including higher fuel costs and reduced subsidies for EVs. Transportation energy costs rose by 15.3 per cent year on year in June, according to China’s National Bureau of Statistics, leading to a significant decline in the sales of internal combustion engine (ICE) vehicles. Sales of ICE vehicles decreased by 39 per cent year on year in June. Meanwhile, the halting of government subsidies for EV uptake has reduced consumer interest in NEVs.
At the same time, Chinese automakers are facing higher raw material and component costs, particularly for EV batteries. These challenges are expected to result in poor profit margins for 2026. Average sales profit margins stood at 3.4 per cent between January and May 2026, with industry profits decreasing 20 per cent year on year.
Poor sales and lower profit margins could reduce the number of automakers in China’s highly fragmented market, with just seven or eight EV producers expected to dominate by 2030, according to CPCA Secretary General Cui Dongshu. He expects China’s BYD and Geely and Leapmotor, Germany’s Volkswagen, and Japan’s Toyota to overtake several American automakers as competition to reduce costs increases.
Of the Chinese automakers, BYD reported 1.8 million unit sales in the first half of 2026, while Geely and Leapmotor achieved 1.4 million and 356,000 unit sales in the same period, respectively. For international automakers, Volkswagen Group reported 973,000 unit sales in China, and Toyota achieved 579,000 unit sales between January and May.
Nevertheless, experts expect Chinese vehicle sales to rebound in the coming years as consumers look to replace ageing cars. This reflects the cyclical nature of the Chinese car market. Meanwhile, Chinese automakers are going from strength to strength in various international markets, as several brands become known for their highly competitive EV and hybrid models.
In Mexico, long seen as a key market for Chinese brands due to the potential for nearshoring, the focus has shifted as the United States introduced tariffs on various countries and products. Nonetheless, several Chinese automakers are beginning to dominate the Mexican market, demonstrating Mexico’s openness to lesser-known, more affordable Chinese car brands.
Mexican sales of Chinese-brand vehicles increased by 30 per cent in the first half of 2026, according to a report from the Mexican Association of Automobile Distributors. Chinese brands contributed approximately 17 per cent of new vehicle sales in Mexico during this period, up from 14 per cent in the first half of 2025, from 107,712 to 137,525 units.
The United States introduced tariffs on Asian vehicles to support its domestic automaking industry, which cannot compete with China in terms of component costs and vehicle pricing. However, the rise in popularity of Chinese vehicles among Mexican consumers has caused concern among U.S. industry representatives.
It is worth noting that several Chinese automakers increased their vehicle inventories in Mexico ahead of the introduction of steep tariffs, which distorts the current figures. The import of Chinese-brand vehicles during the first five months of 2026 declined by 43 per cent compared to the same period in 2025, which could lead to weakened Chinese car sales in the Mexican market moving forward.
Sales of both domestic and foreign vehicle brands fell in China in the first half of the year, largely due to higher fuel prices and reduced EV subsidies. However, several Chinese automakers are developing their reputations in foreign markets as the sale of Chinese EVs grows considerably in certain parts of the world, such as Mexico.
By Felicity Bradstock for Oilprice.com
