China’s market for new-energy vehicles is entering a more restrained phase after several years of rapid expansion.
Retail sales of pure-electric and plug-in hybrid cars are still expected to grow, but at a slower pace as government-backed trade-in subsidies are gradually withdrawn.
These incentives have been a major driver of demand in the world’s largest auto market, and their removal is changing the balance for manufacturers and consumers alike.
Industry data suggests the transition will test the sector’s ability to sustain momentum without heavy policy support.
While demand held up toward the end of 2025, the year ahead is shaping up as one defined by tighter conditions, persistent competition, and limited room for error.
Sales momentum eases
According to the China Passenger Car Association, combined retail sales of battery-electric and plug-in hybrid vehicles are expected to rise by around 10% this year.
That would mark a clear slowdown from the 18% growth recorded in 2025, which itself fell short of the association’s earlier 20% projection.
The softer pace reflects a market that is no longer benefiting from the same level of policy-driven demand.
Trade-in subsidies helped stimulate purchases over the past year, but their gradual phase-out is removing a key prop at a time when consumers are becoming more cautious.
Late-2025 figures still showed resilience. NEV sales rose 2.6% in December, indicating that interest has not collapsed.
However, sustaining growth through 2026 without renewed incentives is likely to be more challenging.
Pressure builds at home
The domestic market is facing structural headwinds that go beyond subsidies.
Overcapacity remains a major issue, with manufacturers producing more vehicles than the market can comfortably absorb.
This has fuelled a prolonged price war, squeezing margins and forcing companies to prioritise volume over profitability.
The passenger car association expects the market to follow a U-shaped pattern in 2026, with relatively strong activity at the beginning and end of the year but a weaker middle period.
Overall domestic retail volumes are projected to be flat, offering little relief for an industry already dealing with high inventory levels.
Such conditions leave limited scope for a quick rebound in consumer enthusiasm, particularly as price cuts become less effective in stimulating fresh demand.
Shifting competitive dynamics
Intense competition is already reshaping the standings among major players.
Market leaders such as BYD and Tesla have been losing ground in China as rivals push aggressively into the mass market.
BYD, despite becoming the country’s largest seller of electric vehicles, recorded its slowest domestic growth in five years.
At the same time, competitors, including Geely Automobile Holdings and Zhejiang Leapmotor Technology, have been gaining customers by rolling out competitively priced models aimed at mainstream buyers.
This shift highlights how scale alone is no longer enough, as buyers weigh affordability and features more carefully in a crowded market.
Exports offer limited relief
Overseas sales remain one of the few areas of strength for China’s EV industry.
Exports grew by about 20% last year, providing an important offset to softer domestic conditions.
For many manufacturers, foreign markets have become essential to maintaining production volumes.
Even this channel is becoming more complex. Rising political tensions have prompted several trading partners to introduce tariffs and other measures designed to slow the flow of Chinese-made vehicles.
These barriers add uncertainty to what has been a key growth avenue and could limit how much exports can compensate for a flatter home market.
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