Car sales in China drop

The slump in sales of vehicles in China is deepening with deliveries plunging as a flood of new products hit the market.

The situation is putting the world’s biggest car market on course for its first double-digit annual decline. 

Deliveries of new passenger vehicles fell by 25 per cent to 1.35 million in July for their seventh monthly drip in a row, reports the China Association of Automobile Manufacturers. Deliveries nosedived by 24 per cent to 9.6m in the first seven months of 2026.

The figures, which cover sedans, crossovers, SUVs, multi-purpose vehicles and minibuses, reflect stalling economic growth in the country, increased fuel prices and a five per cent tax on electrified vehicles imposed in January.

The unprecedented decline marks a reversal for a market that’s been the industry’s growth engine for two decades. It is forcing carmakers to look overseas for sales growth, which in turn is pushing exports to all-time highs. 

Exports for all major Chinese brands have stayed robust this year. For the first seven months, 5.35m passenger vehicles were shipped overseas, up by 73 per cent from 12 months ago.

However, new-vehicle demand in China began losing steam in November when most of the country’s provinces ran out of trade-in subsidies budgeted for passenger vehicles in 2025. In January, the domestic market started shrinking at a double-digit rate and has showed no signs of stabilising.

Stalled economic growth in China has deterred spending on big-ticket items. Higher fuel prices caused by the Middle East conflict have impacted on sales of internal-combustion vehicles, which fell by 47 per cent to 429,000 in July. Such deliveries have dropped by 34 per cent to 4.1m in the first seven months of 2026.

Meanwhile, demand for electrified vehicles, which was robust until the end of 2025, has fallen by since the five per cent purchase tax was rolled out.

Sales of electrified models, which covers fully electric, plug-in hybrids and extended-range EVs, dropped 6.1 per cent to 916,000 in July and slid 15 per cent to 5.5m year to date.

While the China Association of Automobile Manufacturers (CAAM) hasn’t provided a forecast for domestic sales in 2026, the China Passenger Car Association anticipates the domestic market will shrink 14 per cent to less than 21m this year. To date, the steepest decline was of eight per cent in 2018, according to the CAAM.

“We have a huge number of players in the domestic market with more than 130 brands selling vehicles and more than 500 new models launched in the first half of this year,” says Fu Bingfeng, secretary-general of the CAAM. “Such an aggressive rollout of products was far beyond what the market was able to accommodate.”

He adds average operating margins have declined for nearly a decade. They dropped to 4.1 per cent in 2025 from 7.8 per cent in 2017 when annual domestic passenger vehicle sales topped out at 24m. Operating margins fell to 3.4 per cent in the first five months of 2026.