China’s passenger vehicle retail sales fell 20.9% year-on-year in July to 1.461 million units, but the decline was driven almost entirely by a plunge in internal combustion engine (ICE) vehicles rather than any broad-based collapse. Battery-electric vehicle (BEV) sales grew 6.0% as ICE sales fell 44%; plug-in hybrid (PHEV) sales also dropped 21.1%, according to figures released on 11 August by the China Passenger Car Association (CPCA).

Compared to last year, China’s car market remains weaker overall, with new-energy vehicle (NEV) retail sales still down 3.9% to 951,000 units, marking the seventh consecutive month of decline. This was a result of weaker PHEV and extended-range electric vehicle (EREV) sales. Even so, NEV retail penetration reached a record 65.1%, up 11.6pts, since the vehicles losing by far the most ground were ICE-powered.

The CPCA attributed the ICE collapse in part to rising pump prices, a result of disrupted shipping through the Strait of Hormuz pushing up international oil prices. Domestic Chinese gasoline prices have risen a cumulative CN¥1,575 (US$232) per tonne so far in 2026. Broader domestic pressures are also at work, including a years-long property market slump weighing on household spending. Many automakers operating in China also continue to focus on feature-heavy, premium model launches targeting overseas markets instead of affordable entry-level models.

Exports remain the industry’s clearest growth outlet. China shipped 540,000 NEVs in July, rising 147.8% YoY, and NEVs now account for 58.8% of all Chinese passenger vehicle exports. Total passenger vehicle exports reached 918,000 units, up 87.8%, with annual shipments projected to exceed ten million units for 2026, as automakers redirect production capacity that domestic price wars and sales backslides have made increasingly non-viable domestically.

BYD retained its domestic lead with 223,461 NEV retail sales in July, well ahead of Geely (105,526) and Leapmotor (83,698). Changan, SAIC-GM-Wuling and Huawei-backed HIMA rounded out the top six; Chinese NEV startups collectively accounted for 26.8% of retail sales, up 5.4pts, led largely by Leapmotor and Nio.

The CPCA expects the broader market decline to narrow through August as government consumption-support measures take effect and comparisons against last year’s figures become less punishing. However, aggressive price warring and the winding down of NEV purchase incentives will continue to weigh on the segment, as has a new 5% purchase tax introduced in 2025 which is making some buyers more cautious. A separate annual vehicle tax will be applied to some NEVs effective January 2027.