A walk into some car dealerships in China in January 2026 reveals a noticeably calmer atmosphere than in previous years. Sales staff across multiple regions report lighter foot traffic and more hesitant buyers compared with the end of last year. The anecdotal evidence is reflected in the data provided by the China Passenger Car Association (CPCA): nationwide passenger vehicle retail sales totaled just 679,000 units in the first 18 days of January, down 28% year on year. A market adjustment at the very start of the year is quietly taking shape.
A closer look at weekly figures suggests the country’s passenger vehicle market faced quite a big slowdown. In the first week of January this year, average daily retail sales fell to around 30,000 units, plunging 32% from a year earlier and dropping 42% compared with the same period a month ago. Sales improved in the second week to roughly 50,000 units per day, but still trailed last year by 22%.
Wholesale data mirrored this pattern, with automakers shipping 740,000 vehicles in the first 18 days, down 35% year on year and 30% from the previous month’s comparable period.
The contraction is even more pronounced on the production side. In the first two weeks of January, output of pure fuel-powered light vehicles plunged 85% year on year, while hybrid and plug-in hybrid electric vehicle production fell by 65%. This sharp pullback reflects not only weak demand but also deliberate production adjustments by automakers responding to policy shifts and uncertain consumption trends.
Why the slowdown feels unusually sharp
The subdued start to 2026 is the result of several forces converging at once.
First, policy support has entered a transition phase. At the end of 2025, China’s long-running full purchase tax exemption for new energy vehicles officially expired. From 2026, the incentive was scaled back to a 50% reduction, immediately raising the cost of ownership for buyers. Although a new round of vehicle trade-in subsidies has been announced, detailed implementation remains uneven, with only a handful of provinces and cities rolling out replacement programs. This policy uncertainty has encouraged many consumers to delay purchases and wait for clearer signals.
Second, seasonal timing has worked against the market. In 2025, the Chinese New Year fell in mid-January, triggering a concentrated pre-holiday buying rush that inflated the comparison base. By contrast, the 2026 holiday comes in late February, pushing traditional “pre-holiday” demand into the following month and leaving January relatively weak. Moreover, the policy-driven buying spree ahead of last year’s incentive expiry effectively pulled some demand forward, further weighing on early-2026 sales.
New energy vehicle sector: resilience amid pressure
Despite the broader downturn, the new energy vehicle (NEV) segment has shown notable resilience. Retail sales of new energy passenger vehicles reached 312,000 units in the first 18 days of January, down 16% year on year—a far milder decline than the overall market. This suggests that the NEV consumer base remains relatively stable even as incentives are reduced.
In response to the scaling back of tax incentives, automakers have avoided relying solely on aggressive price cuts.
BMW China, for example, announced official price reductions across 31 core models, with discounts reaching up to 300,000 yuan per car. Many domestic brands have taken a different approach, offering additional features without raising prices or directly subsidizing purchase taxes. Wuling and Geely Galaxy have introduced tax support ranging from 3,000 yuan to 14,000 yuan on selected models, while brands such as NIO have leaned more heavily on battery leasing and financing solutions to lower upfront costs. Together, these strategies are shifting competition away from pure pricing and toward overall value and ownership experience.
Looking back at 2025: A steady finish on a high base
To put the 2026 slowdown in perspective, it is essential to revisit 2025. Last year, China’s passenger vehicle retail sales totaled 23.744 million units, up 3.8% year on year, while wholesale volumes grew by 8.8% from a year earlier. New energy passenger vehicle wholesales surged 25.2% over the previous year, effectively meeting the targets set under the country’s 14th Five-Year Plan.
For clarity, the PVs mentioned here are all locally produced on the Chinese mainland.
December data highlighted growing divergence within the market. Retail sales slipped 14% year on year to 2.261 million units, while wholesale volumes fell 9% to 2.789 million. By year-end, trade-in subsidy budgets in many provinces had largely been exhausted, offsetting the anticipated buying rush ahead of the purchase tax policy change and resulting in a more complex market dynamic.
On a full-year basis, the NEV industry chain remained a standout performer. Production of New energy passenger vehicles reached 15.348 million units in 2025, up 26.1% from a year earlier, while retail sales jumped 17.6% over the previous year to 12.809 million units. Exports were particularly strong, surging 86.2% year on year to 2.422 million vehicles, underscoring China’s growing role in the global NEV market.
Outlook: Engines of growth are being shifted
The current slowdown resembles a momentary jolt in the middle of an industry-wide gear change rather than a structural reversal. As local governments gradually clarify subsidy details and fully open application channels, pent-up demand that has been temporarily held back is likely to return. Combined with the typically rigid pre-holiday purchasing needs ahead of the Chinese New Year, the market could see signs of recovery as early as February.
Over the longer term, China’s automotive market—particularly the NEV segment—is undergoing a fundamental shift in its growth drivers. The era of heavy policy support is gradually fading, forcing automakers to compete on intrinsic strengths such as product quality, technological experience, and cost efficiency. Improvements in charging infrastructure and advances in vehicle intelligence are emerging as the next critical sources of consumer appeal.
As the first year of China’s 15th Five-Year Plan, 2026 carries expectations of becoming a “year for boosting auto consumption.” The early pressure seen at the start of the year may ultimately serve to build a healthier and more sustainable foundation for long-term growth. What began in a chilly market environment could evolve into a deeper, more rational competition centered on real value creation and innovation.
