BUSINESS

China’s Car Sales Hit the Brakes Amid Tax Hikes and Waning Stimulus

Published: Jan. 23, 2026 3:20 a.m. GMT+8

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2026年1月16日，成都，领克06第30万辆整车下线。图：视觉中国

China’s car market hit a speed bump in early 2026, with passenger vehicle sales plunging 28% year-on-year in the first 18 days of January as policy support faded and new taxes dampened consumer sentiment.

The drop underscores what could be a difficult year for automakers in the world’s largest car market. As stimulus measures recede and consumer spending remains weak, many companies are shifting their focus overseas to maintain growth.

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China’s passenger car sales dropped 28% year-on-year in early January 2026, with NEV sales down 16% to 312,000 units.
Policy shifts include a halved tax exemption for NEVs and reduced, percentage-based trade-in subsidies, hitting low-cost vehicles hardest.
Industry forecasts 1–3.6% sales decline for 2026, with potential recovery later in the year and projected car export growth of 10–15%.

AI generated, for reference only

Who’s Who

China Passenger Car Association: The China Passenger Car Association (CPCA) is an organization that provides data and insights on China's passenger car market. According to their figures, retail passenger car sales in China dropped significantly in early 2026. The CPCA Secretary General, Cui Dongshu, attributed this decline mainly to changes in government policy impacting new-energy vehicle subsidies and purchase taxes. The CPCA forecasts a 1% dip in China's passenger car sales for the year.

Counterpoint: Counterpoint is a research firm where Kevin Li serves as the head of automotive research. The firm projected a 3.6% decline in China's passenger car sales for the current year. This projection comes after subsidies supported over 23 million sales in 2024 and 2025, which, according to Li, masked the true fragility of first-time buyer demand.

AI generated, for reference only

What Happened When

September 2014：: China's purchase tax exemption for new-energy vehicles (NEVs) was first introduced.

2024 and 2025：: Subsidies supported more than 23 million sales across these years, according to Counterpoint.

January 8, 2025：: Vehicles transferred after this date are no longer eligible for certain trade-in subsidies under the 'renewal and trade-in' policy.

2025：: Strong demand was observed for NEVs priced under 150,000 yuan, with sales of those under 80,000 yuan jumping 51.8%.

Since January 2026：: The purchase tax exemption for NEVs was halved, requiring consumers to pay a 5% tax. The subsidy structure under the 'renewal and trade-in' policy was also revamped and extended through 2026.

January 1, 2026 to January 18, 2026：: Retail passenger car sales in China fell 28% year-on-year, with retail sales sliding to 679,000 units and NEV sales dropping 16% to 312,000 units.