2026 Auto Market, a Cold Start

Policy shifts and seasonal factors have chilled the start of the 2026 auto market. According to the latest data from the China Passenger Car Association (CPCA), while the passenger vehicle market picked up slightly in the second week of 2026 (Jan 12–18) compared to the first, the pattern of year-on-year and month-on-month declines remains unchanged. The new energy sector is also facing short-term pressure. This early-year adjustment is the inevitable growing pain of a policy transition, yet it conceals latent momentum for industrial transformation and consumer demand—setting the tone for the market's trajectory in the year ahead.

Passenger Market: Ticking Up, Yet Under Pressure

On the retail front, nationwide passenger vehicle sales from January 1 to 18 totaled 679,000 units—a 28% drop from the same period last year and a 37% slide from the previous month.

Weekly data paints a picture of a market touching bottom before edging up. Daily retail sales averaged just 30,000 units in the first week, plunging 32% year-on-year and 42% month-on-month. By the second week, consumer vitality stirred slightly: daily sales recovered to 50,000 units, narrowing the annual decline to 22% and the monthly drop to 31%.

Image Source: CPCA

The wholesale side largely mirrors the retail market. From January 1 to 18, automakers wholesaled 740,000 passenger vehicles nationwide—a 35% year-on-year decline and a 30% drop from the prior month. This created a divergence between wholesale and retail growth rates.

Weekly figures show manufacturers averaged 35,000 wholesale units daily in the first week—a sharp 40% annual drop and a 30% monthly decline. In the second week, daily wholesale volume rebounded to 51,000 units. While the year-on-year decline narrowed to 28%, the month-on-month drop held steady at 30%.

The sluggish start stems from a convergence of factors. On the policy front, the purchase tax exemption expired at the end of 2025. Although a 2026 trade-in policy has been announced, detailed implementation has lagged; with only a handful of provinces and cities launching replacement subsidies, consumers are in a wait-and-see mode, prolonging the decision-making cycle.

Seasonal factors are equally significant. Mid-January 2025 marked a pre-Lunar New Year sales surge, creating a high baseline for comparison. With the 2026 holiday falling in mid-to-late February, the pre-festival buying wave has been pushed back, leaving this month's retail figures relatively weak. Furthermore, a rush to catch the "last train" of purchase tax benefits at the end of 2025 pulled some rigid demand forward, exacerbating the market's early-year decline.

Still, the CPCA notes that the market should gradually recover as local subsidy details and payment channels fully come online, coupled with the gradual release of pre-holiday purchasing power.

The chill has spread further to the production floor. In the first two weeks of January, production of internal combustion light vehicles nationwide fell to just 91,000 units—an 85% year-on-year plunge and a 77% monthly drop. Combined output for hybrids and plug-in hybrids reached 139,000 units, down 65% and 75% respectively. This sharp contraction reflects automakers' adjustments to the weak start, as well as a proactive alignment of industrial structure during the policy transition.

Notably, as the inaugural year of the 15th Five-Year Plan—and with 2026 positioned as a major year for auto consumption—local governments and automakers are still sprinting for a "January opening." Some companies hold a significant backlog of pre-sold orders awaiting delivery, and with the Lunar New Year in February, some wholesale volume has shifted into January. Consequently, the CPCA expects the full month to achieve slight year-on-year growth.

New Energy Sector: Outperforming the Market, Showing Resilience

Against the backdrop of a broader market slump, the new energy passenger vehicle sector is also declining—but the drop is significantly less severe than for traditional internal combustion vehicles. This highlights the industry's resilience, even as policy-driven market differentiation becomes increasingly pronounced.

Retail data puts NEV sales at 312,000 units from January 1 to 18—a 16% year-on-year decline but a massive 52% drop from the previous month. Still, this outperforms the overall passenger market by 12 percentage points, suggesting a relatively solid foundation for NEV consumption. On the wholesale side, automakers moved 348,000 NEVs during the same period, down 23% annually and 46% monthly.

The NEV market's short-term dip stems largely from a double hit of policy adjustments and demand that was pulled forward. The shift from a full purchase tax exemption to a 50% reduction has directly increased costs for buyers. Meanwhile, while strong subsidies for commercial vehicle updates remain in place for 2026, subsidies for passenger vehicle scrappage are projected to fall by an average of 20% based on 2025 structures, and trade-in subsidies could drop by as much as 30%—further weighing on sales.

Facing the pressure, automakers are deploying countermeasures rather than simply spiraling into a price war. BMW China cut the guide prices of 31 core models by up to 300,000 yuan. Domestic brands, meanwhile, are largely adopting strategies of "adding features without raising prices" or absorbing tax costs. Brands like Wuling and Geely Galaxy are offering purchase tax subsidies ranging from 3,000 to 14,000 yuan on select models, while NIO and others are doubling down on financial policies like battery leasing. This multi-pronged approach aims to offset the policy rollback, stabilizing short-term demand while steering the industry away from price cutting and toward competition based on product strength and technological innovation.

In the long run, the NEV market is not seeing the "end of a myth," but rather entering a new stage transitioning from policy-driven to product-driven growth. As charging infrastructure improves and intelligent features evolve, the cost advantages and differentiated experience of EVs are becoming increasingly pronounced. Consumer purchasing decisions are shifting from reliance on subsidies to a recognition of intrinsic product value.