China Auto Market Boomed in 2025: Why Growth May Be Softer in 2026

Vehicle sales and production in China hit record highs in 2025, with both metrics exceeding 30 million units for the third straight year. According to the China Association of Automobile Manufacturers (CAAM), annual vehicle production and sales totaled 34.5 million units (up 10.4% year over year) and 34.4 million units (up 9.4% year over year), driven largely by strong demand for new energy vehicles (NEVs).

Last year, China’s passenger vehicle market crossed the 30-million-unit mark in both production and sales, reflecting steady underlying growth. Passenger vehicle output reached 30.27 million units, while sales totaled 30.10 million units, up 10.2% and 9.2%, respectively, year over year. The commercial vehicle segment also rebounded, with production and sales rising to 4.26 million and 4.30 million units, both posting double-digit growth.

With this performance, China maintained its position as the world’s largest auto market for the 17th consecutive year.

However, with global economic uncertainty, intensifying competition, and the gradual phasing out of government subsidies, the key question is whether this momentum can be sustained in 2026. Before turning to the outlook, let’s first break down what drove China’s auto market strength in 2025.

NEVs & Export Growth Surge in 2025

China remained the world’s largest NEV market for the 11th straight year in 2025. Thanks to policy support, a deeper model pipeline and better charging infrastructure, the NEV segment delivered strong growth. Both production and sales surpassed 16 million units during the year.

NEV sales rose 28% year over year to 16.5 million units. Battery electric vehicles (BEVs) led the expansion, with sales climbing 37.6% to 10.6 million units. Plug-in hybrid vehicles (PHEVs) also grew steadily, reaching 5.8 million units, up 14%. Fuel cell vehicle (FCV) volumes remained small but expanded sharply, rising 53% to around 8,000 units.

Exports were another key growth driver in 2025. Chinese automakers stepped up their global push as product quality improved and pricing remained competitive. Total vehicle exports reached a record 7.1 million units, up 21% year over year, thanks to fast-growing NEV shipments.

Among exporters, Chery remained the largest contributor, shipping 1.34 million vehicles overseas. BYD Co Ltd BYDDY delivered the strongest growth, with exports surging 140% to 1.05 million units, highlighting the rapid globalization of its lineup.

2025 Delivery Snapshot: BYD, NIO, XPEV & LI

BYD remained the clear volume leader, delivering about 4.6 million vehicles in 2025, up 7.7% year over year. Sales were evenly split between battery electric vehicles and plug-in hybrids, underscoring the strength of its diversified lineup.

NIO Inc. NIO delivered 326,028 vehicles, up nearly 47% year over year, supported by demand across NIO, ONVO, and Firefly brands. NIO’s cumulative deliveries totaled 997,592 units by year-end.

XPeng Inc. XPEV recorded the fastest growth, with deliveries jumping 126% year over year to 429,445 units. Overseas deliveries for the year totaled 45,008 vehicles, up 96% year over year, as XPeng expanded operations to 60 countries and regions by the end of 2025.

However, NIO and XPeng’s close peer Li Auto LI delivered 406,343 vehicles last year, marking a 19% year-over-year decrease. During the year, Li Auto broadened its international presence by launching the Li L9, Li L7 and Li L6 models in Egypt, Kazakhstan and Azerbaijan, marking the entry into markets across Central Asia, the Caucasus and Africa. 

While NIO and XPEV carry a Zacks Rank #3 (Hold) each, BYD and LI are #4 Ranked (Sell) currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

China Auto Growth Set to Cool in 2026

Growth in China’s auto market is expected to moderate in 2026 following a very strong 2025, which likely absorbed a large portion of pent-up demand. Domestic demand is expected to remain fragile as income visibility and job security concerns will likely weigh on consumer confidence.

Policy support for NEVs has also been scaled back. This year onward, NEVs no longer enjoy a full purchase tax exemption, with buyers now paying a 5% tax under a capped 50% reduction scheme. The gradual phase-out of trade-in subsidies reinforces the shift from a policy-driven market to a more demand-led one, which is expected to slow NEV growth.

Competition is intensifying as well. Even market leaders are starting to see slower domestic growth as rivals push aggressive mass-market offerings. Meanwhile, exports face growing risks from trade tensions, tariffs and a push toward localized production.

Another short-term drag comes from tighter rules on heavy discounting. In recent years, some automakers boosted sales by registering new cars and then selling them as “used” vehicles at steep discounts to clear inventory. Regulators are now cracking down on this practice. While this improves transparency, it reduces an easy outlet for excess supply and could slow sales as inventories build.

Together, these factors point to a more muted growth outlook for 2026.

Per CAAM, China’s vehicle sales are expected to rise for the sixth consecutive year in 2026 but growth is likely to slow down to the weakest pace of the cycle. Total vehicle sales are forecast to increase just 1% to 34.8 million units, compared with a 9% rise in 2025.

Growth is expected to moderate across segments. Passenger vehicle sales are projected to edge up 0.5% to 30.3 million units, while commercial vehicle sales are likely to increase 5% to 4.5 million units. NEVs should still remain the main growth driver, with sales forecast to rise 15% to 19 million units, though at a slower pace than recent years. Auto exports are also expected to expand modestly, up 4% to 7.4 million units.

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