China’s Electric Vehicle Market Faces Uncertainty Amid Falling Sales and Price Competition
The Chinese electric vehicle (EV) market is experiencing a period of uncertainty as weak year-end sales and falling deliveries at major brands raise concerns about an impending price war. Analysts suggest that the lackluster performance in 2025 could lead to further price reductions by low-cost carmakers, intensifying competition among manufacturers.
According to Zhao Zhen, a sales director at Shanghai dealer Wan Zhuo Auto, the failure of deliveries to meet expectations has forced major players to slash prices in order to clear inventories at the beginning of 2026. This trend is expected to continue as demand for new cars remains weak, leading to more aggressive competition within the industry.
Declining Deliveries and Subsidy Changes
In December, BYD, the world’s largest EV manufacturer, reported 420,398 deliveries, marking an 18.3% decline compared to the previous year. Similarly, Li Auto, a premium EV maker, delivered 44,246 units, a drop of 24.4% from the same period in 2024. These figures are particularly concerning as they indicate a slowdown in sales despite expectations of a strong end-of-year rush.
The anticipated surge in EV deliveries did not materialize as consumers were expected to complete purchases before Beijing phased out tax incentives and reduced subsidies in 2026. However, the initial results showed sales far below what was forecasted by carmakers and analysts.
According to the China Passenger Car Association, sales of pure electric and plug-in hybrid vehicles reached 1.19 million units between December 1 and 28, representing a 5% increase from the previous year. Analysts had predicted a much higher growth rate of over 30%, which would have been a significant improvement from the 32.2% rise seen in the final month of 2024.
Adjustments to Subsidy Mechanisms
Beijing has introduced changes to its trade-in subsidy program, which may impact the financial viability of some manufacturers. Under the updated scheme, buyers replacing petrol or electric cars with new vehicles can receive a cash subsidy of up to 20,000 yuan (US$2,858) per unit. The subsidy is calculated as 12% of the new car’s price, capped at 20,000 yuan, while buyers of petrol-powered vehicles can receive a 10% subsidy, capped at 15,000 yuan.
This shift from flat subsidies to percentage-based support means that buyers of cheaper models will receive less assistance than in previous years. Deutsche Bank analyst Wang Bin noted that this change could negatively affect lower-priced manufacturers such as BYD, Leapmotor, and Geely.
Market Outlook and Consolidation
Deutsche Bank estimates that mainland passenger-car sales could fall by 5% in 2026, while JPMorgan predicts a 3 to 5% decline in deliveries by Chinese automotive groups this year. Analysts expect a new round of price competition as carmakers strive to maintain their market share.
Eric Han, a senior manager at Shanghai consultancy Suolei, said that assemblers and dealers will closely monitor the government’s stance as they consider further price cuts. Beijing has warned against aggressive discounting, emphasizing the risks posed by an EV price war.
Despite these challenges, consolidation in the market is expected to accelerate. About 50 loss-making mainland EV makers may be forced to scale down or exit the market over the next five years due to persistent overcapacity and reduced government support.
Stephen Dyer, Greater China co-leader and head of Asia automotive practice at AlixPartners, stated that only 15 Chinese EV brands—about 10% of the total—are likely to turn a profit over the next five years as sustained price competition continues to pressure margins.
Conclusion
As the Chinese EV market navigates through declining sales and shifting subsidy policies, the path forward remains uncertain. While some manufacturers may find ways to adapt and thrive, others may struggle to survive in an increasingly competitive landscape. The coming years will be crucial for determining the long-term health and stability of the industry.
