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Government subsidies and cheap manufacturing costs have long given Chinese automakers a competitive edge when it comes to EV production, facilitating the rapid expansion of manufacturers like BYD and Geely into overseas markets.
This seemingly unstoppable growth now appears to be showing signs of waning, following an announcement from the China Passenger Car Association reporting a fall in electric vehicle sales for the first time since February 2024.
The news marks the first time in almost two years that the world’s largest EV industry has reported declining sales.
The data, which takes into account the sale of EVs and hybrid vehicles, showed a 14% drop in January compared to the previous year and a 32% fall from December.
The agency remained optimistic in the face of weakened growth, saying:
“The new-energy vehicle market has entered a phase of normal adjustment,” adding that the short-term fluctuation was expected and “does not reflect the market’s long-term trajectory”.
Many analysts have attributed this decline to the beginning of the Lunar New Year, a historic lull period in automotive sales. The agency echoed this claim, stating:
“February auto sales are expected to mark the absolute trough for the year.”
In addition to these predicted market fluctuations, the ending of government subsidies has undoubtedly contributed to the dip. The full tax exemption for New Energy Vehicles (NEVs) ended in China on December 31, 2025. Under the new legislation, NEVs transitioned from full tax exemption to a 50% tax exemption.
Another significant challenge facing Chinese automakers is the oversaturation of the domestic EV market, which has led to fierce competition among manufacturers. This competition has driven down EV prices and forced Chinese automakers to look to less competitive markets overseas to boost global sales.
Overseas markets in Latin America and Europe continue to serve as a lifeline for Chinese brands combating a competitive domestic market. In 2025, China exported 8.32 million cars, 30% more than in 2024. Sales of EVs and hybrids rose 70% to 3.43 million units.
While this strong export trajectory may have shielded Chinese automakers from the worst of the downturn, global sales have continued to slow.
BYD, which recently surpassed Tesla in global EV sales, is amongst those susceptible to market uncertainty. The company reported weak sales in the first month of 2026, with January sales falling by 30% — considerably worse than the industry average.
Other factors may also have contributed to the downturn, including regulatory changes such as the recent ban on hidden door handles, popularised by Tesla, following a series of fatal incidents. Design and regulatory shifts have posed additional challenges for Chinese automakers, who are now struggling to keep abreast of legislative fluctuations.
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