China's car market heads for a 22% drop this year, with only a 2% rebound seen for 2027

China's domestic car market is on track for its worst year in more than a decade, and the trade group that tracks it does not expect much of the lost volume to return next year. Cui Dongshu, secretary-general of the China Passenger Car Association, said on Monday that retail sales should finish 2026 at about 18.5 million vehicles, roughly 22% below the 23.74 million peak of 2025. That is below the 19.29 million sold in 2020. For 2027 the association's forecasting team sees growth somewhere between zero and 5%, with 2% as the central case.

Cui described the 2% figure as a mild recovery rather than a strong rebound, and said competition would keep polarizing. Reuters, which carried his remarks, noted that the 2026 downturn was steeper than the industry had expected.

How the year fell apart

Retail sales fell 21.7% year over year to 13.33 million vehicles in the first nine months, according to CPCA data reported by China Daily. September alone was down 28%, and the first 18 days of October were down 26%. Cui attributed the slump to purchases pulled forward ahead of incentive changes, the fading effect of trade-in subsidies, high oil prices, higher chip and battery material costs, and weak consumer sentiment.

Tax policy did much of the pulling forward. New energy vehicles went from a full purchase-tax exemption in 2025 to a 50% reduction for 2026 and 2027, with the saving capped at 15,000 yuan, or about $2,250, per vehicle. Buyers who could move their purchase into 2025 did.

The decline has not been even. New energy vehicles took a record 67% of retail sales in September. Their volume fell 16.7% from a year earlier, while conventional fuel vehicles fell 43%, China Daily reported from association figures.

Exports up, imports down by half

The China Association of Automobile Manufacturers, which counts wholesale volume, said exports reached 8.21 million vehicles in the first nine months, up 65.8%, while domestic sales fell 22.4%. Chen Shihua, the group's deputy secretary-general, said exports had kept growing quickly and showed strong resilience, and pointed to the rising share of new energy vehicles as evidence the market is changing structurally rather than simply shrinking.

Traffic in the other direction has collapsed. CPCA data released on October 25 put September imports at about 21,000 vehicles, down 49% from a year earlier and 6% from August, the second straight month near a 50% decline. Imports for January through September were 290,000 units, down 20%. Retail sales of imported cars fell 39% in September to 29,000 and 32% over nine months to 280,000. Cui said the downward pressure on imported cars remains intense.

Japan and Germany remain the largest sources, at 7,399 and 7,255 vehicles respectively in September, followed by the United Kingdom at 2,488. ChinaEVHome, citing the CPCA report, said the back-to-back declines in August and September mostly reflected sharp swings in shipments from Japan. By powertrain, hybrid imports rose 15% over nine months and were the only category to grow. Battery-electric imports fell 27% and plug-in hybrids fell 54%. New energy vehicles made up just 1.2% of all imports.

Gasgoo noted that the brands most exposed are the ones that still ship cars in rather than build them locally. Mercedes-Benz and BMW have long built their core models in China, and Audi and Volvo are moving more of their high-end lines to local assembly. Porsche and Lexus still depend heavily on imports, and both brands' China sales are contracting this year, though Lexus's share of the imported luxury segment rose to 8.3% in September from 7.9% in 2025.

Foreign brands below 30%

The South China Morning Post reported on Monday that international brands from Volkswagen to Toyota lost share again in the third quarter, taking foreign marques below 30% of mainland deliveries, as buyers turned away from more expensive foreign cars during an economic slowdown and as the market tilts further toward electric vehicles.

Zhang Yongwei, president of the China EV100 research institute, described the domestic market as one of strong supply and weak demand. He said the top 20% of models account for 85% of sales, while 70% of models sell fewer than 1,000 vehicles a month on average. Future growth, in his view, will depend more on product quality, technology, efficiency and overseas operations than on adding output.

What a 2% year looks like

A 2% gain on 18.5 million would put 2027 sales near 18.87 million, still roughly a fifth below the 2025 peak. Cui's case for the floor holding rests on the purchase-tax adjustments fading as a factor, strong Lunar New Year demand, retreating oil prices, lower lithium carbonate prices, less pressure to clear inventory, and a stronger new-product cycle. He said the long-term logic of steady growth remains intact and that improving product competitiveness on the supply side is what turns pent-up demand into retail sales.

The key questions he flagged are whether inventory normalization holds and whether new-vehicle supply chains fully recover. Xinhua, citing industry sources, expects a stable stock cycle in 2027, and the China EV100 institute shares the association's view that the market is bottoming out. For global automakers, the forecast implies a home market that stays about a fifth smaller than it was, with Chinese brands and electrified models holding the larger share of it.