With domestic demand declining and exports surging, the automotive market has undergone a structural shift in the first half of the year.

The China Passenger Car Association and the China Association of Automobile Manufacturers have successively released June and first-half passenger car production and sales figures. Although the two sets of statistics differ slightly in their methodologies, the broader industry picture is stark: domestic retail sales have plummeted, with gasoline‑powered vehicles nearly cut in half; meanwhile, overseas vehicle exports have surged, making it virtually certain that annual exports will exceed 10 million units. While domestic demand remains under pressure and relies on overseas markets for support, the new‑energy vehicle sector is also showing a bifurcated trend: battery‑electric vehicles continue to strengthen, while the plug‑in hybrid segment has largely lost its growth momentum, signaling that transitional strategies are being phased out at an accelerating pace.
The two sets of data released over the past two days—on the 8th and 9th—clearly paint a picture of cooling demand in the domestic market. According to the China Association of Automobile Manufacturers, retail sales of passenger cars in June totaled 1.497 million units, down 26.4% year on year. Sales of gasoline‑powered vehicles fell sharply to just 490,000 units, nearly halving compared with the same period last year—a decline of 49.9%. Over the first half of the year, cumulative passenger car sales reached 8.288 million units, a 24.3% drop from the prior year; gasoline‑powered vehicles accounted for 3.694 million units, down 31.9% year on year.

Such a year-on-year decline has not been seen in nearly four years. Virtually all of the downward pressure on the broader market has been borne by gasoline‑powered vehicles. A telling detail is that automakers’ wholesale sales have not contracted markedly, suggesting that substantial inventories are piling up at dealerships. Joint ventures that rely on volume sales from fuel‑efficient cars have thus become the most directly burdened by mounting stockpiles. In the first quarter, the industry broadly agreed that domestic passenger‑car sales could plunge by as much as 20% over the full year 2026. While half‑year data appear to confirm this forecast, the mainstream narrative underlying this assessment actually contains two significant flaws.
First, the recovery of the new‑energy sector has far outpaced industry expectations. In the first half of the year, overall new‑energy vehicle sales fell 13.4% year over year, yet in June alone, sales declined by just 0.4% compared with the same month last year, and they continued to rebound from May, making it the only segment capable of propping up the broader market. Earlier, the market was broadly pessimistic, believing that the phasing out of government subsidies, combined with front‑loaded demand last year, would plunge the sector into a prolonged slump for the full year. However, judging from June’s performance, the demand gap created by policy‑driven front‑loading is being rapidly closed, suggesting that the sector could return to positive growth in the third quarter and that the full‑year outlook will avoid the sharp downturn many had feared.
Second, attributing the entire decline in gasoline‑powered vehicle sales to high oil prices is no longer tenable. The timeline aligns clearly: as U.S.–Iran tensions escalated, international crude oil prices surged past $100 per barrel in March and remained at elevated levels; concurrently, gasoline‑car sales tumbled. In April and May, luxury gasoline‑car brands saw a pronounced drop in sales. While rising oil prices did serve as a short‑term catalyst, since June both global crude oil prices and domestic refined‑product prices have fallen in tandem, with July seeing oil prices dip below $70 per barrel. Yet retail sales of gasoline‑powered vehicles have shown no sign of recovery, indicating that oil price alone cannot account for the current situation.

On a deeper level, the rise in oil prices has arguably been the final straw that broke the camel’s back for gasoline‑powered vehicles. Many consumers who had planned to trade in their cars have long been holding off on switching to new‑energy vehicles; fluctuations in fuel prices have merely accelerated their decision‑making. Even if oil prices were to fall back to low levels, those who have already reset their purchasing mindset are unlikely to revert to gasoline cars. While this structural shift in demand currently lacks robust quantitative evidence, feedback from dealerships is already strikingly clear.
As a result, we’re seeing multinational automakers this year collectively entering a phase of large-scale strategic realignment: either slashing global investments in electric vehicles or simultaneously cutting jobs and shutting down overseas plants, leaving their global operating structures in constant flux. Management priorities have shifted entirely to restructuring organizational hierarchies, while new‑car development and iterative model launches have been put on hold, with most vehicle‑update programs now being handed over to their Chinese joint ventures. In the first half of the year, the industry rolled out more than 600 new models, annual facelifts, and derivative variants—but only a handful of these could genuinely boost internal‑combustion‑engine sales or deliver distinctive competitive advantages. With demand continuing to erode and no fresh offerings to fill the gap, the ICE‑vehicle segment has largely lost any chance of turning the tide.
Overall, the new‑energy sector has withstood market headwinds, but within the industry the era of broad‑based gains is long gone, with the growth trajectories of pure electric, plug‑in hybrid, and range‑extended models now sharply diverging. According to CAAM’s first‑half data, sales of pure‑electric vehicles rose 13% year over year, while combined plug‑in hybrids and range‑extended models fell 2.5% compared with the same period last year. Meanwhile, the CPCA’s June breakdown reveals an even starker contrast: wholesale sales of pure‑electric cars reached 981,000 units, up 26.9% year over year; plug‑in hybrids totaled 406,000 units, up 18.1%; and range‑extended models amounted to just 94,000 units, a steep 25.2% decline. In the top‑10 list of new‑energy vehicle sales for the first half of the year, only one range‑extended model remains—Aion M9—while the remaining spots are firmly occupied by pure‑electric vehicles.

Many people readily attribute the decline in range‑extender sales to fuel prices, but real‑world driving patterns don’t support this conclusion: the vast majority of range‑extender owners commute daily in all‑electric mode, so fluctuations in gasoline costs have only a limited impact on their purchasing decisions. The biggest shortcoming of range extenders today is that their inherent limitation—short electric‑only range—is being increasingly amplified. Even the latest large‑size range‑extender SUVs, with battery capacities boosted to 70–80 kWh, have failed to reverse the segment’s downward trend. The key selling point that once fueled the rapid growth of range extenders—zero range anxiety—is now being rapidly eroded by advances in pure‑electric technology. With long‑range BEVs becoming mainstream, megawatt‑level flash charging rolling out, and nationwide networks of battery‑swap stations expanding, the experience of fast energy replenishment has come tantalizingly close to that of refueling a gasoline car. By contrast, range‑extender vehicles, which add an extra internal‑combustion‑engine system, face higher maintenance costs and greater risks of breakdowns, steadily eroding their original competitive edge.
It is undeniable that, in remote areas where charging infrastructure remains scarce, range‑extending vehicles still offer irreplaceable practical value and will maintain a stable core customer base in the short term. However, the growth dividends of this segment have long since evaporated, leaving its long-term prospects bleak. Once solid‑state batteries achieve commercial deployment, all vehicle types equipped with fuel tanks—whether gasoline cars or range‑extending EVs—will face renewed pressure to survive; rising oil prices have merely accelerated this transition.
While the domestic market remains sluggish, overseas vehicle exports have staged an unusually robust surge, emerging as the sole clear growth driver for the automotive industry this year. According to data from the China Association of Automobile Manufacturers, total vehicle exports reached 5.096 million units in the first half of the year, with passenger car exports accounting for 4.432 million—up 65.3% year on year. In June alone, exports totaled 1.037 million vehicles, including 905,000 passenger cars, with the year-on-year growth rate expanding to 75.1%. The steep upward trajectory suggests that surpassing 10 million units in annual exports is virtually assured.
The landscape of Chinese automakers’ overseas expansion has become markedly bifurcated: Chery topped the industry in half-year export volume, with exports accounting for 70% of its total sales, making it the first truly export‑oriented vehicle manufacturer in China; Geely posted the fastest export growth in the sector, up 150% year over year. By comparison, Japan’s peak automotive export volume was 6.85 million units in 1985. By 2026, China’s total vehicle export volume is poised to shatter the global record for automobile exports.

Since 2020, when China’s auto exports stabilized at the million‑vehicle level, the sector has maintained steady year‑on‑year growth—culminating this year in a dramatic leap in volume. Today, the monthly export total nearly matches the entire annual export figure from seven years ago, and the landscape of Chinese automakers’ global expansion has changed beyond recognition. For too long, the industry has been dominated by a one‑sided narrative: that China’s new‑energy vehicle exports rely solely on government subsidies, while Tesla remains the global leader in electric‑vehicle technology. Yet the reality is quite the opposite: in its early years, Tesla was mired in a prolonged cash‑flow crisis; it was only by establishing operations in China and leveraging the country’s robust, integrated supply chain for mass production that it managed to turn its fortunes around.
The global competitiveness of Chinese automakers has never rested on the superiority of any single technology; rather, it stems from a fully integrated industrial ecosystem that spans upstream mineral resources, battery production, vehicle manufacturing, and intelligent‑vehicle components, delivering systemic advantages in supply-chain efficiency and end-to-end product development. Tariff barriers may temporarily shield domestic firms from competition, but they cannot erase the underlying cost and efficiency gaps that persist across the manufacturing value chain.

The European Union has launched an anti-subsidy investigation into China’s new‑energy sector. At its core, the EU’s aim is not to scrutinize subsidies but to compel Chinese firms to disclose their complete production processes for battery cathodes, separators, and individual cells—essentially seeking to fill gaps in its own fragmented supply chain. However, the bankruptcy of the European‑based battery maker NorthVolt has shattered the notion of “indigenous battery manufacturing” in Europe and the U.S.: despite continued massive financial infusions from European automakers and comprehensive support from Chinese companies—providing turnkey equipment, process know-how, and hands‑on line‑management assistance—local battery producers still struggle to achieve stable mass production.
After conducting on-site visits to China’s domestic battery‑industry value chain, numerous European and American venture capital firms have placed power‑battery and energy‑storage projects squarely on their “non‑investable” lists. Chinese companies have established overwhelming production capacity across the entire upstream supply chain—covering graphite, rare‑earth metals, and metallurgy—and this comprehensive industrial foundation cannot be replicated in the short term through a mere technology‑transfer agreement. The trade‑protection measures adopted by Europe and the United States, such as anti‑dumping duties and minimum‑price restrictions, merely use non‑market tools to temporarily erode our cost advantages; they can only slow the pace of overseas expansion, without reversing the long‑term balance of power. In third‑party overseas markets lacking protection from local automakers, manufacturing efficiency and product practicality remain the decisive benchmarks for success.
In the conventional view, Latin America and Africa—regions with weak power infrastructure—are seen as barren markets for electric vehicles, where gasoline-powered cars remain a basic necessity. Yet the reality on the ground tells a very different story. In many developing countries, grid-supplied electricity is unreliable, while the dozens of kilowatt-hours stored in an EV’s battery can readily serve as a backup power source for homes, powering shop lighting and small industrial equipment—at a total cost far lower than that of residential energy storage systems or diesel generators. Chinese electric vehicles come standard with external power‑output capabilities, effectively turning these mobility tools into “mobile energy stations” and squarely addressing the rigid demand for reliable power in underserved regions.

The breakdown of export growth clearly points to long-term trends: in the first half of the year, exports of conventional gasoline‑powered vehicles rose 35.5% year over year, while new‑energy electric‑vehicle exports surged by 120%. Although total gasoline‑car exports still exceed those of EVs, it is only a matter of time before EV exports surpass them—the turning point is near. Domestically, the Chinese market essentially serves as a “pilot testing ground” for the global automotive electrification transition; the extent to which new energy is replacing traditional internal‑combustion vehicles has already far outstripped that seen in overseas markets. The domestic market share of gasoline cars has long since fallen below 30%, and industry consensus suggests that the long‑term floor could eventually dip to around 20%. Only in specialized scenarios—such as extreme cold or heavy off‑road conditions—do gasoline cars retain irreplaceable advantages; once solid‑state batteries achieve commercial deployment, the room for gasoline vehicles will be further squeezed.
In the second half of the year, the retail market for gasoline-powered vehicles is expected to see a modest recovery, though the upside will be quite limited. For joint ventures and traditional automakers that rely on gasoline cars as their core product line, the immediate business priority has shifted from regaining lost market share to maintaining their existing customer base. Persistent demand volatility significantly increases management costs across production lines and supply chains; a stable sales foundation is the sole basis for manufacturers to plan output and control costs.
The domestic and international markets are perfectly hedged: robust growth in overseas exports can largely offset the sales shortfall resulting from a contraction in domestic demand. Coupled with the continued recovery of China’s new‑energy vehicle market, the overall domestic passenger‑car market is likely to post a modest year‑over‑year decline for 2026, avoiding the sharp downturn foreshadowed by first‑half data.
A few years ago, the market’s shift toward new energy was still driven by policy; today, consumers are making the transition on their own, completely reshaping the industry landscape. The era when gasoline-powered vehicles dominated China’s auto market is now firmly behind us. The structural transformation toward electrification is irreversible; the only question left is how quickly that transition will unfold. Meanwhile, the dual circulation strategy—both domestic and international—will remain a lasting, defining feature of China’s automotive sector.

Reposted from Sina Auto

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