China's Car Market Hits a Speed Bump in 2025

China's auto market is bracing for a stall, with industry forecasts pointing to flat car sales this year. The slowdown marks a significant cooldown for the world's largest auto market, as the electric vehicle boom loses momentum and the outlook for robust export growth dims.

A Market in Transition: The Latest Figures

Data from the China Passenger Car Association (CPCA) reveals a market losing steam. Overall car sales grew just 3.9% in 2025, a noticeable drop from the 5.3% expansion seen in 2024 and the slowest growth rate in three years.

While 2025 marked the first year that electric vehicles and plug-in hybrids collectively outsold traditional gasoline cars, the growth in this sector has slowed dramatically. Sales of these new energy vehicles increased by only 17.6% last year, a sharp deceleration from the 40.7% surge recorded in 2024.

Domestic Demand Wavers Amid Subsidy Shifts

The slowdown is largely driven by weakening domestic demand, which became particularly apparent in the final quarter of the year. A key factor was the reduction or suspension of government subsidies for vehicle trade-ins in numerous cities and provinces due to funding shortages.

This pullback in support has intensified an already fierce price war, pushing automakers to look overseas to compensate for sluggish performance at home.

The government's revised subsidy program is unlikely to reverse the trend, according to S&P Global Ratings. The agency noted that the new scheme adds pressure on major players like BYD and Geely. Here’s how it works:

• Subsidy Cap: The maximum incentive remains 20,000 yuan (US$2,859.47) for trading an old car for a new EV.

• New Calculation: The subsidy is no longer a fixed amount but is now based on the price of the new vehicle.

• Potential Impact: This change could reduce the financial incentive for purchasing lower-priced models, which constitute the majority of new car sales in China.

Last year, official data showed that sales of subsidized vehicles surpassed 11.5 million units.

Dealers Brace for a Tougher Year

Sentiment on the ground reflects the challenging outlook. A survey by the China Automobile Dealers Association found that:

• 41% of dealers expect automakers to set lower sales targets for 2026.

• 18.1% of those surveyed anticipate a sales drop of more than 10%.

The Export Engine Begins to Sputter

While domestic sales faltered, Chinese automakers ramped up overseas expansion. In 2025, China's total car exports climbed 19.4% to 5.79 million vehicles. Exports of pure electric vehicles were particularly strong, jumping 48.8% to 1.52 million units.

Even as BYD recorded its weakest sales growth in five years, its international sales hit a record of over one million vehicles.

However, this export boom may not be sustainable. The CPCA predicts that overall car export growth will cool to 10% in 2025, down from 25% a year earlier. More strikingly, the association forecasts zero growth for EV exports.

Cui Dongshu, the CPCA's secretary general, attributed the weaker outlook to domestic pressure to clear inventory, a softening global appetite for electric cars, and falling oil prices. In contrast, he noted that exports of plug-in hybrids, which more than tripled in 2025, are expected to remain a bright spot.

Some Automakers Remain Upbeat

Despite the broader market pessimism, some companies are still targeting aggressive growth.

Xiaomi, maker of the SU7 sedan and YU7 SUV, sold over 410,000 EVs in 2025 and aims to sell 550,000 vehicles this year. Similarly, Leapmotor is forecasting 68% growth in sales volume after its 2025 sales more than doubled from the previous year.