Has Chinese light vehicle demand peaked?

Over the past decade, China has established itself arsenic 1 of, if not the starring subordinate successful the planetary automotive sector, holding some the largest home income measurement and highest conveyance manufacturing output successful the world.

That pb widened again successful 2025. The country’s topline home Light Vehicle (LV) income are estimated to scope a seven-year precocious of 26.9 mn units, up by 5.5% year-on-year (YoY) compared to 2024, aided by assertive discounting and supportive authorities policy. However, the market’s red-hot momentum whitethorn beryllium nearing a turning constituent arsenic the government’s crack-down connected the terms warfare is stepping up, portion subsidy bandwidth is expected to driblet considerably successful 2027.

In presumption of our outlook, we stay affirmative for 2026 but expect a slowdown thereafter, with volumes projected to autumn by 1.8 mn units successful 2026-28 arsenic subsidy-driven pull-forward effects retract from imaginable buying activity. Although income are forecast to instrumentality to humble growth—averaging 1.3% per twelvemonth successful 2029-33—our longer-term presumption beyond 2033 points to a level trajectory, meaning that LV income volumes are not expected to surpass their 2026 level.

So, has the marketplace deed its peak? Recent request has been exceptionally strong, but the main drivers underpinning this spot are starting to fade. A cardinal illustration is the past mates years of aggravated terms competition.

The home terms warfare is nearing its end

Chinese OEM’s person been locked successful an aggravated home terms warfare since the authorities withdrew the nonstop New Energy Vehicle (NEV) subsidy successful 2023. Since then, the mean conveyance terms has fallen from $26,900 successful January 2023 to a debased of $21,300 successful February 2025.

While bullish discounting has supported volumes, it has travel astatine a wide cost, with detrimental effects being seen by each OEMs successful the market—falling prices and gross person squeezed profitability crossed the industry, and respective smaller brands are present struggling to survive.

As of November 2025, mean prices had edged backmost up to their highest level since January 2025, indicating that the lagged effect of the government’s involution successful June whitethorn present beryllium positively impacting pricing momentum.

Nonetheless, prices are inactive acold from expensive—the November mean was $4,400 beneath January 2023. Even assuming a comparatively generous 3% mean monthly increase, it would instrumentality astir 7 months for prices to instrumentality to January 2023 levels.

This operation of aggravated terms contention and authorities argumentation enactment has near consumers with a almighty inducement to buy—one of the cardinal forces down the acceleration successful post-pandemic LV income recovery.