Policy changes and sales fluctuations continue to affect the Chinese market

With subsidies suspended in a wide range of regions, light vehicle (LV) sales in China posted negative growth in December. Total volumes reached approximately 2.5 million units, representing a 16% year-over-year (YoY) decline. The passenger vehicle (PV) segment, which fell 17% year-on-year to 2.2 million units, remained the main driver, while the light commercial vehicle (LCV) segment posted a modest 1% year-on-year increase to 240,000 units. For the full year 2025, LVs still performed well, with total volumes reaching 26.9 million units, up 6% year-on-year. Similarly, by segment, both PV and LCV grew by 6% year-on-year. The seasonally adjusted annualized sales rate (SAAR) for December was 24.2 million units, down 15% compared to the same period in 2024.

During the month, China’s BT production totaled 3.1 million units (-3.5% y-o-y). PV production, which accounted for 90% of the total, fell 4.1% year-on-year to 2.9 million units, but still pointed to sustained consumer demand and market resistance. In contrast, CV production increased by 2.5% year-on-year to 291,000 units. Chinese domestic OEMs posted their first production decline, down 0.4% year-on-year to 2.3 million units, while joint-venture OEMs remained under pressure, with production down 11.1% year-on-year. On the other hand, exports were a clear bright spot. During the month, China shipped 684,000 LVs, which represented strong growth of 47.5% y-o-y and 3.0% month-on-month (MoM), driven mainly by PVs, as overseas deliveries rose 48.1% y-o-y to 633,000 units. CV exports also strengthened, rising 42.4% year-on-year to 72,000 units. For the whole year 2025, total LV exports reached 6.6 million units, a year-on-year expansion of 19.4%.

Overall, China’s auto market slowed sharply in December, with momentum quickly cooling — effectively a “quick freeze” — as a combination of factors weighed on demand. The usual year-end sales surge, known as the “tail effect”, did not materialize, likely because many consumers brought forward their purchases in line with the “golden September and silver October” sales season and to take advantage of regional “exchange” subsidies. Thus, sales between January and October increased by 7% year-on-year, well above the typical levels of recent years. In addition, as of November, grant budgets were depleted in many regions, leading to application suspensions that reduced the expected policy increase and softened replacement demand. Adding to the hesitation, from 2026, the tax on the purchase of new energy vehicles (NEV) will go from full exemption to a 50% reduction; however, implementation details have been delayed, causing many consumers to postpone their purchases and further widening the year-end demand gap.

December’s decline thus reflected the combined effects of fading policy support, consumer hesitancy, ongoing industry transformation, particularly the shift from gasoline vehicles to NEVs, and inventory pressures. This suggests that the market is entering a new phase of deeper adjustment and restructuring, going beyond the era of rapid growth.

Looking to 2025, China’s automobile industry delivered solid progress in scale, structural optimization, technological innovation and market standardization, indicating a shift to a new phase of high-quality development. Both LV production and sales reached record highs. NEV sales exceeded 13 million units, up 20% year-on-year, and became the main growth force in the market. To address “rollover-style” competition, regulators introduced a number of measures during the year, including measures to curb disorderly price wars, encouraging automakers to honor payment commitments, running targeted campaigns to address online disorder, and issuing guidelines on price compliance practices, all aimed at maintaining healthy competitive conditions. At the same time, the regulatory and security framework has continued to improve. The Ministry of Industry and Information Technology made the requirement of “no fire, no explosion” mandatory for power batteries, standardized hidden door handles, and put pure electric photovoltaics under export license management. Supervision of used car exports was also strengthened to support the sustainable development of the industry.

In 2026, China’s auto market will likely enter a crucial stage, moving from “scale competition” to “capacity competition”. From a policy perspective, adjustments to the NEV purchase tax, an updated trade-in subsidy program, and a stricter dual credit policy will directly affect consumers’ vehicle purchase costs and automakers’ strategic priorities. In general, the policy focus is shifting from broad-based stimulus to more targeted support, an approach that should be more sustainable in the long term. Two features stand out. First, linking subsidies to new vehicle prices should help prevent the previous practice of “profiteering” through low-priced models and ensure that tax resources are more precisely targeted at improving consumer demand. Second, prior clarification of policy details should stabilize consumer expectations and reduce irrational spikes in last-minute purchases seen in previous years before grant deadlines. Based on current conditions, we expect the domestic market in 2026 to increase slightly or remain flat from 2025, while exports should maintain double-digit expansion. NEVs, foreign markets and downstream markets will remain the key pillars of growth. At the same time, the transformation of the sector is likely to accelerate even further, intensifying consolidation and accelerating the cycle of “survival of the fittest”.

“Policy changes and sales fluctuations continue to affect China market” was originally created and published by Automatic onlya trademark owned by GlobalData.

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