China's car market is experiencing a notable downturn, with passenger vehicle sales dropping by 20.2% in the first half of 2026. The China Passenger Car Association (CPCA) has revised its full-year sales forecast, now predicting a 14% decline, resulting in an expected total of 20.4 million units sold, down from 23.7 million in 2025.
Analysts like Xiao Feng from Citic CLSA are even more pessimistic, forecasting a 20% drop in cumulative sales. The decline is attributed to several factors, including rising fuel costs, which surged 15.3% year-on-year in June, and a reduction in electric vehicle subsidies that previously stimulated demand.
Retail sales of internal combustion engine vehicles fell 39% year-on-year in June, significantly impacting overall sales figures. The automotive sector is also grappling with increased raw material costs, leading to a drop in profit margins to 3.4% for the first five months of 2026, with industry profits down 20% year-on-year.
Analysts predict that only a handful of major players will survive this competitive environment, with companies like BYD, Geely, and Leapmotor expected to remain strong. Despite the current challenges, there is optimism for a recovery in 2027, driven by aging vehicle fleets and a potential increase in exports, which saw an 82.3% year-on-year surge in June.
Experts believe that as global fuel prices rise, demand for Chinese-made electric vehicles may increase, providing a pathway for recovery in the coming years