China's electric vehicle (EV) market, once a global growth engine, has hit a significant slowdown, with industry leader BYD reporting its weakest monthly battery-electric car sales in nearly two years. In January 2026, BYD sold just 83,249 battery-electric passenger cars, marking the lowest monthly total since February 2024. This figure was part of total vehicle sales of 205,518, which includes plug-in hybrids.
The slowdown is attributed to a major policy shift. Starting January 1, 2026, China reinstated a 5% purchase tax on new energy vehicles (NEVs), ending an exemption from the full 10% vehicle purchase tax that had been in place for over a decade. Analysts, including Helen Liu, a partner at Bain & Company, suggest this tax change could prompt consumers to delay purchases, adding pressure to the market.
BYD's struggles are part of a broader market cooldown. At least six major Chinese EV brands reported sharp month-over-month sales drops in January. New energy vehicle sales grew just 2.6% year-over-year in December, marking a third consecutive month of slowing growth. The timing is complicated by the Lunar New Year holiday, which causes volatility in early-year economic data. Tu Le, founder of Sino Auto Insights, noted the full impact of the slowdown won't be clear until after the first quarter ends.
While BYD stumbles, competition is heating up. Geely has climbed to second place in China's EV market, selling over 270,000 vehicles in January (including exports) and expects 2026 NEV sales to reach 2.22 million. Other competitors like Aito (using Huawei's OS), Leapmotor, and Nio posted strong year-over-year delivery gains. Smartphone maker Xiaomi also recorded over 39,000 electric car deliveries, though down from December's peak.
BYD's export business also cooled, with overseas shipments dropping to 100,482 vehicles in January from 133,172 in December. Despite this, the company plans to boost overseas sales by nearly 25% this year to 1.3 million cars. BYD had previously overtaken Tesla to become the world's largest seller of battery-electric cars in 2025, delivering 2.26 million units.
The automotive sector supports about 30 million jobs in China. In response to the downturn, industry observers like Cameron Johnson of Tidalwave Solutions expect Beijing may reinstate some subsidies if the sector worsens further, with policy targets likely to be clarified at China's annual parliamentary meeting in March.
