HONG KONG, CHINA - JANUARY 05: A general view of the BYD Auto showroom on January 5, 2026, in Hong Kong, China. (Photo by Sawayasu Tsuji/Getty Images) Sawayasu Tsuji | Getty Images News | Getty Images
BEIJING — Shares of BYD were headed for a sixth straight week of declines after the Chinese electric car giant reported a nearly two-year low in local sales in January, signaling mounting challenges for the world's largest auto market. The slump comes amid rising concerns about lackluster domestic demand in China, and overproduction of cars spilling into other countries. At least six major electric car brands from Xiaomi to Xpeng reported a sharp sales drop in January from December, according to CNBC's analysis. Some companies only report deliveries rather than sales, and don't break down overseas figures. "We see increasing pressure on China's auto market in 2026, driven by a combination of policy and competitive factors," said Helen Liu, partner at Bain & Company. She said policy changes could prompt consumers to delay their car purchases, while automakers become more cautious about new vehicle launches. China's economic and business figures for the first two months of the year tend to be volatile as the Lunar New Year holiday, which follows an agrarian calendar, falls on different dates each year. But this past January also saw a major reduction in government support for electric cars. Starting Jan. 1, China has reinstated a 5% purchase tax, after exempting new energy vehicles from the full 10% vehicle purchase tax for over a decade. New energy vehicles include battery and hybrid-powered cars. "We know [EV sales will] slow, we just don't know by how much," said Tu Le, founder and managing director at consulting firm Sino Auto Insights. "We'll know much better after the first quarter is over."
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Fierce competition
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Despite recent headwinds, Le expects BYD to retain its dominance in both the domestic and international markets, citing planned upgrades to the company's charging, energy storage, and intelligent driving infrastructure. Xpeng reported just 20,011 car deliveries in January, after a year that saw an average of more than 35,000 cars a month. Li Auto deliveries also fell, to 27,668 cars, last month.
Broader economic impact
The slowdown in sales is industry-wide. New energy vehicle sales, which includes hybrid and battery-powered cars, eked out a 2.6% year-on-year increase in December, in a third-straight month of slowing growth, according to China Passenger Car Association data. It's a troubling sign for an electric car industry that's been a bright spot in an economy struggling to overcome a years-long decline in real estate, once a driver of about a quarter of gross domestic product. If, on top of the prolonged property slump, the autos sector worsens further, many in the industry expect Beijing to reinstate some or all of the subsidies," said Cameron Johnson, Shanghai-based senior partner at consulting firm Tidalwave Solutions, citing conversations in the last week with car parts manufacturers. "We'll have to see how Q1 goes."
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