China’s electric vehicle sector, long a global growth engine, showed clear signs of strain in January 2026, with leading player BYD reporting its lowest monthly domestic sales in nearly two years amid weakening consumer demand, policy shifts, and intensifying price competition.
The slowdown reflects broader challenges in the world’s largest auto market, where overcapacity, subsidy reductions, and economic headwinds are testing the industry’s resilience.
BYD sold 83,249 battery electric passenger vehicles in January 2026, part of a total 205,518 new energy vehicles (including plug-in hybrids)—the lowest monthly domestic figure since February 2024’s 121,748 units. Exports also declined to 100,482 vehicles from 133,172 in December. The company, which overtook Tesla as the world’s top battery-electric vehicle seller in 2025 with 2.26 million units (up 28% year-on-year), has yet to disclose a full-year domestic sales target for 2026. It projects overseas sales growth of nearly 25% to 1.3 million units, signaling a strategic pivot toward international markets.
At least six major Chinese EV brands reported sharp month-on-month delivery declines in January, according to CNBC analysis. Xiaomi delivered over 39,000 vehicles, down from more than 50,000 in December, though up year-on-year. Xpeng fell to 20,011, after averaging over 35,000 monthly in 2025. Li Auto dropped to 27,668, and Nio reported 27,182. Aito (Huawei-backed) delivered over 40,000 units (up 80% year-on-year), while Leapmotor rose to 32,059. Geely, including Galaxy and Zeekr brands, sold more than 270,000 vehicles overall (including exports), with new energy vehicle sales targeted at 2.22 million for 2026 (up 32%).
The broader market echoed the weakness. China Passenger Car Association data showed new energy vehicle sales (battery and hybrid) grew just 2.6% year-on-year in December 2025—the third consecutive month of slowing growth. This contrasts with the sector’s explosive trajectory: by mid-2024, over half of new passenger cars sold in China were new energy vehicles, and BYD’s 2025 dominance underscored China’s lead in EV production and exports.
Key pressures include:
- Policy Headwinds: On January 1, 2026, China reinstated a 5% purchase tax on new energy vehicles after more than a decade of full exemption from the 10% vehicle purchase tax. This change has prompted some consumers to delay purchases, with analysts expecting further moderation in early 2026 demand. Helen Liu, partner at Bain & Company, noted: “We see increasing pressure on China’s auto market in 2026, driven by a combination of policy and competitive factors.” Policy uncertainty and subsidy phase-outs have also made automakers more cautious about new model launches.
- Intense Price Competition: A prolonged price war among domestic players has squeezed margins while pushing feature-rich vehicles at lower prices. Geely’s Galaxy EV and other low-end models have eroded BYD’s dominance in its traditional price segments. Tu Le, founder of Sino Auto Insights, observed: “BYD has had a stellar run at the top and it’s impressive how long they’ve been able to hold off their domestic competitors… Companies like Geely with its Xingyuan have really taken sales on the low end, where BYD’s bread is buttered.”
- Economic Context: China’s economy continues to face headwinds from a prolonged real estate slump (once contributing ~25% of GDP), weak consumer confidence, and slowing growth. The auto sector, supporting over 30 million jobs (more than 10% of urban employment), remains a critical pillar. Fitch Ratings economist Alex Muscatelli noted that while autos represent only 3.7% of fixed asset investment (versus real estate’s 23%), further deterioration could prompt Beijing to reinstate subsidies. Industry observers, including Cameron Johnson of Tidalwave Solutions, expect potential policy support after Q1 data clarifies the slowdown’s depth.
- Overcapacity and Exports: Massive investment has led to oversupply, depressing prices and prompting consolidation. Many producers have expanded overseas to offset domestic weakness, though global tariffs and trade tensions limit opportunities.
Despite the challenges, there are still some bright spots. Aito, Leapmotor, and Nio posted year-on-year delivery gains, while Xiaomi’s SU7 sedan remains popular ahead of an April upgrade. BYD continues to invest in charging infrastructure, energy storage, and intelligent driving, positioning itself for long-term leadership.
Tu Le expects BYD to retain dominance both domestically and internationally. China’s top leaders will release 2026 policy targets at the annual parliamentary meeting in March. With Q1 data still volatile due to the Lunar New Year holiday (which shifts annually), the full extent of the slowdown will become clearer later in the year.








