China's passenger car market is heading for its weakest year in seven years, with sales shrinking across the board but premium electric vehicles bucking the trend, according to data from the China Passenger Car Association (CPCA) cited by Chinese outlet D1EV.
Retail sales of passenger cars in China totaled 13.33 million units in the first nine months of 2026, down 21.7% year-on-year. The CPCA forecasts full-year retail sales of around 18.5 million units, which would mark a drop below the 19.29 million units sold in 2020 and the lowest since then. In 2025, retail sales hit a record 23.74 million units.
Cui Dongshu, secretary general of the CPCA, said the projected 18.5 million units is "abnormally" low and a short-term deviation from the market's long-term range, adding that the deeper the deviation, the greater the room for a rebound in 2027.
Budget segments collapse, premium grows
In the first half of 2026, cars priced under 50,000 yuan (about $7,000) saw sales plunge 55% year-on-year to 130,000 units, with their market share halving from 2.8% to 1.4%. The 50,000-100,000 yuan segment fell 20%, while the 100,000-150,000 yuan segment dropped 27%, with its share shrinking from 32.3% to 30.6%.
The pain is concentrated in entry-level price bands, which are also the densest for fuel vehicles. New energy vehicle (NEV) penetration hit a record 67.0% in September, but NEV retail sales themselves fell 16.7% year-on-year, a smaller decline than the overall market's 28% drop. Within the 100,000-150,000 yuan band, plug-in hybrids (PHEVs) and range-extenders (EREVs) are declining faster than battery-electric vehicles (BEVs).
Meanwhile, the premium end is thriving. The over-400,000 yuan segment was the only one to grow in the first half, with sales up 1% to 430,000 units. NEVs in that segment surged 46% to 240,000 units, with penetration rising from 44% in 2025 to 56%. Chinese brands took 59% of that segment, up 21 percentage points year-on-year.
Specific models illustrate the shift: the Aito M9 has been the best-selling model above 500,000 yuan for 20 consecutive months, with cumulative deliveries exceeding 280,000 units. The Zunjie S800 has led the million-yuan luxury segment for seven straight months. Xpeng's X9 delivered 4,219 units in January, accounting for 21% of the brand's monthly total.
Bigger cars, thinner margins
The shift toward larger vehicles is evident in new model launches. In the first seven months of 2026, 56% of new NEVs were over 5 meters long, up from 44% in 2024. By August, that share had risen to 78%, while models under 4.5 meters accounted for just 2% of new NEVs, down from 13% a year earlier.
The CPCA attributes this to higher profit margins on larger cars and the opportunity to absorb customers from traditional luxury brands. Mercedes-Benz, BMW, and Audi saw combined sales in China fall by nearly 260,000 units in 2025, and Chinese brands now occupy six of the top ten spots in the over-500,000 yuan segment. Price cuts are also spreading: the Audi A8L customized version is being offered at 569,800 yuan including license and tax, about 27% below its starting guide price of 780,000 yuan, while the BMW 735Li has seen terminal discounts of 270,000 yuan.
Looking ahead, Cui expects 2027 retail sales to grow 0-5%, with an average of around 2%, describing it as a "weak recovery after bottoming out" rather than a strong rebound. Supportive factors include the expiration of purchase tax incentives, Chinese New Year spending, lower oil prices, and falling lithium carbonate costs, as well as inventory cycle reversal and a backlog of model launches.
The market's contraction is not uniform but structural, with demand concentrating on high-value vehicles and supply shifting toward larger, smarter, and electrified models. The era of volume-based competition is giving way to precision positioning in specific segments, according to D1EV.
