China's passenger vehicle market seen steady in January as policy transition tempers early momentum

Gasgoo Munich- Based on preliminary estimates from the China Passenger Car Association ("CPCA"), China's passenger vehicle ("PV") retail sales are projected to reach around 1.8 million units in January 2026. While this would represent a month-on-month decline of about 20.4%, sales are expected to edge slightly higher year on year.

New energy vehicles (NEVs) are forecast to account for roughly 800,000 units, translating into a penetration rate of approximately 44.4%.

For clarity, the PVs mentioned here are all locally produced on the Chinese mainland.

With the Chinese New Year falling later in 2026, January serves as the final full sales month before the holiday and includes more working days than a year earlier. As first-time purchase demand begins to emerge alongside seasonal homecoming travel, the overall market is expected to post marginal year-on-year growth. That said, while national vehicle scrappage subsidies are already in place, the scaling back of purchase tax incentives has pulled some demand forward. At the same time, trade-in subsidy programs are still being rolled out across provinces, contributing to cautious consumer sentiment and lingering uncertainty at the retail level.

The market opened January on a soft note, weighed down by the halving of purchase tax incentives. Average daily retail sales in the first week slipped to around 30,000 units, down both year on year and month on month. Conditions improved modestly in the second week, with daily sales rising to about 50,000 units and the pace of decline narrowing. As local trade-in subsidies began to take effect in the third week, momentum continued to recover, with daily sales expected to reach roughly 57,000 units. By the fourth week, the combined impact of more fully implemented subsidies and stronger pre-holiday first-time buying demand is likely to restore growth, pushing daily sales toward 120,000 units. Taken together, January retail sales are forecasted at 1.8 million units, down month on month but up about 0.3% from a year earlier.

Against the backdrop of fading purchase tax incentives and adjustments to regional trade-in programs, China's passenger vehicle market ended December 2025 on a relatively stable note. Data from the CPCA show that the country's PV retail sales reached 2.261 million units in last December, down 14% year on year but up 1.6% from November, slightly underperforming typical seasonal patterns. Supported by strong replacement and trade-in policies throughout the year, the full-year 2025 market still set a new high, with total retail sales of 23.745 million units. NEVs accounted for 12.809 million of those sales, up 17.6% year on year, lifting annual penetration to 53.9%.

In the near term, the market is navigating a sensitive transition between policy regimes. The shift in 2026 from full exemption to a 50% levy on NEV purchase tax has triggered a period of negotiation between consumers and automakers, dampening buying enthusiasm early in the year. This hesitation is compounded by cold January weather and the dominance of price-sensitive first-time buyers ahead of the holiday season, keeping NEV demand relatively subdued and pushing penetration to what is expected to be a temporary low. More broadly, the market is moving away from heavy reliance on policy-driven stimulus toward a phase increasingly shaped by product competitiveness and more normalized consumption patterns.