China's car market crashes at home but soars in global exports

China's auto industry is facing contrasting trends at home and abroad. Domestic car sales fell sharply in January, marking the steepest decline in nearly two years. Meanwhile, exports surged as manufacturers like BYD pushed into overseas markets with electric and hybrid models.

Passenger car sales in China dropped 19.5% in January compared to last year, hitting 1.4 million units. This followed a decline from 2.2 million in December and represents the largest monthly fall since February 2024. Weak domestic demand and reduced tax incentives for electric vehicles contributed to the slump.

The prolonged price war in the industry has cost automakers an estimated 471 billion yuan over the past three years. In response, the State Administration for Market Regulation introduced new rules to curb aggressive pricing. These ban selling vehicles below production cost and prohibit deceptive pricing and price-fixing. Violations could now lead to serious legal consequences.

While domestic sales struggle, Chinese automakers are expanding abroad. Passenger car exports jumped 49% year-over-year in January, reaching 589,000 units. Companies like BYD have focused on Europe and Latin America, with plans for local production advancing. Though no Chinese automaker officially opened a European factory in 2023, BYD's Hungarian plant began trial operations in early 2026.

Analysts predict exports will keep growing this year, driven by demand for electric and plug-in hybrid vehicles. However, domestic sales are expected to remain weak, with S&P forecasting a possible 3% drop in light vehicle sales for 2026.

The new pricing rules aim to stabilise China's auto market after years of intense competition. Overseas expansion continues to offset weak domestic demand, with exports rising sharply. Yet, the industry still faces challenges as sales projections for 2026 suggest further declines at home.