The car market is quiet at the end of the year

As the end of the year approaches, the performance of the automotive market can be described as "full of twists and turns."

On December 16, the China Automobile Dealers Association announced the sales figures for the first week of December 2025. The data shows that from December 1 to 7, the national retail sales of passenger vehicles reached 297,000 units, a year-on-year decrease of 32% compared to the same period last December, and an 8% decrease compared to the previous month.

Among them, the retail sales of new energy vehicles were 185,000 units, a year-on-year decrease of 17% compared to the same period last December, and a 10% decrease compared to the previous month.

This level of year-on-year decline is the first occurrence after 2023.

An industry insider stated that the recent fluctuations in the domestic automotive market are influenced by the interplay of two policy factors: one is the increase in rigid expenditures due to the tapering of the vehicle purchase tax exemption policy, and the other is the continuation of national subsidy policies such as 'trade-in' with uncertain details.

Previously, the Ministry of Industry and Information Technology, the Ministry of Finance, and the State Administration of Taxation jointly issued a notice clarifying that from January 1, 2026, to December 31, 2027, the vehicle purchase tax for new energy vehicles will be halved.

In this context, what direction will the automotive market take in the future?

Policy Transition "Window Period"

The core of the market's wait-and-see sentiment lies in the "window period" of policy transition.

Currently, the vehicle purchase tax rate is 10%, and the purchase tax for new energy vehicles is adjusted to be halved, meaning the actual tax rate is 5%, while the tax exemption cap has also been reduced from 30,000 yuan to 15,000 yuan.

"The purchase tax for new energy vehicles is about to be adjusted. From this perspective, during the last window period, everyone should 'rush' to buy," said an industry insider.

During visits, sales personnel from multiple automotive brands in Beijing and Shanghai also expressed that, according to their expectations, there should be a surge in sales in December, but the current market remains calm, and it is not as the outside world claims that consumers are rushing to complete their car purchases before the end of the year due to the purchase tax.

As the end of the year approaches, automotive sales stores are increasingly proactive in reminding consumers of this trend. In areas such as Chaoyang and Haidian in Beijing, new energy vehicle brand stores have even posted the calculation method for the purchase tax difference in prominent positions or repeatedly mentioned it during live broadcasts. Stores hope to stimulate consumers to purchase cars in advance.

However, data from the China Automobile Dealers Association shows that 58.2% of dealers believe that the November market did not meet expectations, with the core reason being the strong wait-and-see sentiment among consumers, but the existence of the "policy rush faction" still supports terminal demand.

Some consumers also believe that automotive companies will continue to "backstop" in 2026, meaning that even if the purchase tax increases, automotive companies will likely offset it through other discounts.

On the other hand, many regions across the country have recently pressed the "pause button" on the national trade-in purchase subsidies.

In the past two years, to promote consumption, China has continuously issued ultra-long-term special government bonds to fund equipment updates and trade-in for consumer goods. In 2024, 150 billion yuan will be invested in the national trade-in field for consumer goods. In 2025, the policy will be strengthened, with the "national subsidy" amount doubling from 2024 to 300 billion yuan, with automotive subsidies accounting for a large portion According to data from the Ministry of Commerce, from January to November this year, the sales of related products driven by the replacement of old consumer goods exceeded 2.5 trillion yuan, benefiting over 360 million people. Among them, over 11.2 million vehicles were replaced, bringing good consumption vitality and terminal sales to the automotive market.

On November 12, the Beijing Municipal Bureau of Commerce issued a notice stating that it would suspend the automobile scrapping and renewal subsidy policy for 2025, based on the principle of "total control, first come first served, and stop when used up." The policy will be suspended starting from 0:00 on November 11.

Will there still be purchase subsidies in the future? Recent high-level meetings have clearly stated that they will optimize the implementation of the "two new" policies, including the replacement of old consumer goods. This provides a basis for the continuation of the current "national subsidy" after the end of 2025.

On one side, consumers continue to wait and see, while on the other side, car companies are intensifying competition.

"The technology iteration of new energy vehicles is too fast, but cars are large items with long replacement cycles. Consumers worry that the car they just bought will quickly become outdated, which makes them more cautious," an industry insider analyzed.

Data from the China Automobile Dealers Association shows that in November 2025, the inventory warning index for automobile dealers in China was 55.6%, reaching a peak for the year. Currently, the total inventory of dealers nationwide has exceeded 3.3 million vehicles, with more than 30% of dealers facing passive inventory pressure.

"Purchase tax safety net," "tail effect" turns into "flat tail"

Under the dual impact of changing policy rhythms and intensified competition, the year-end "tail effect" that the market previously expected has not materialized this year.

In the automotive industry, the "tail effect" usually refers to the phenomenon where automotive sales are stimulated by short-term sales policies from car companies and dealers in the fourth quarter, especially in November and December.

For example, in November 2024, the retail volume of the national passenger car market increased by 16.5% year-on-year and 7.1% month-on-month; in December 2024, the retail volume increased by 12% year-on-year and 8.7% month-on-month.

However, in November this year, the domestic automotive market experienced a rare year-on-year decline. According to data released by the Passenger Car Association on December 8, the national retail sales of passenger cars in November were 2.225 million units, a year-on-year decrease of 8.1% and a month-on-month decrease of 1.1%.

"A month-on-month decline in passenger car market sales in November is quite rare," said Cui Dongshu, secretary-general of the Passenger Car Association. He believes that the passenger car market in China achieved a rapid growth of 13% in sales in the first half of this year, and the growth in the second half needs to return to a reasonable and stable state.

Cui Dongshu emphasized that this decline is partly due to the high sales base in the second half of last year and partly due to the suspension or change to lottery of old-for-new subsidies in many places, which affects consumer purchases.

Looking back, the cumulative growth rate of retail sales in the domestic passenger car market this year went from a growth of 1.2% in January-February, to a growth of 15% in March-June, and then to a growth rate hovering around 6% in July-September Lang Xuehong, deputy secretary-general of the China Automobile Dealers Association, analyzed that another reason why the tail effect was not as obvious as expected is the counteraction brought by the price protection commitments of car manufacturers.

In response to the market situation, various car manufacturers have "dug into their own pockets" to launch preferential policies, the most significant of which is that many car manufacturers have announced they will "cover" the purchase tax for new energy vehicles. If consumers order a car before December 31, 2025, but it is not delivered, the manufacturer will make up for the excess purchase tax collected at the time of delivery.

According to incomplete statistics, currently over 20 car manufacturers, including Nio, ZEEKR, Xiaomi, and Aito, have launched "purchase tax coverage" policies, with the maximum coverage amount reaching 15,000 yuan. The difference in purchase tax will be compensated for customers' additional expenses through methods such as reducing the final payment or providing cash subsidies.

"This seems to alleviate consumers' concerns, but in reality, it changes their car-buying rhythm," said an industry insider, who believes this has led consumers to tend to wait and has suppressed immediate car-buying demand in the fourth quarter.

Previously, Nio Chairman Li Bin had publicly warned that the impact of the withdrawal of replacement subsidies was "more severe than expected."

Thus, the anticipated "tail effect" has turned into a "flat tail."

This policy change will also affect the car market in 2026. Li Jie, a senior expert in outbound brands at Easyhaichuang, believes that the "purchase tax coverage" by car manufacturers may preemptively exhaust some purchasing power for 2026. As the narrowing of policy dividends is a certain event, consumers' sensitivity to prices will significantly increase, and it is expected that the year-on-year sales data for the first quarter of 2026 may come under pressure.

The China Passenger Car Association also pointed out that the exit of the 5% purchase tax exemption policy for new energy vehicles alone means a reduction in car purchase incentives exceeding 100 billion yuan, which undoubtedly poses challenges for the growth of the car market in 2026.

UBS issued a forecast on December 12: based on the scenario where the 5% purchase tax will be levied as planned and the scrapping subsidies will be partially extended, the growth rate of domestic passenger car sales in 2026 may slow from 8% in 2025 to -2% in 2026.

"After the subsidy decline, new energy vehicle companies must rely entirely on products and technology."

Behind the policy shift is that China's new energy vehicle industry is transitioning from "policy-driven" to "market-driven" and "technology-driven." An automotive industry insider stated that under this adjustment, the Chinese automotive industry will usher in a new round of "survival of the fittest."

Geely Auto's CEO and executive director Gui Shengyue stated in the third-quarter earnings call this year that with the adjustment of national new energy subsidy policies, industry development will be market-oriented, marking a maturation of the Chinese automotive market and the starting point for healthy development. In this stage, companies with strategic determination and strong foundations will have more advantages.

According to data from the China Passenger Car Association, in November, BYD remained the top seller in the retail sales ranking, with sales of 306,600 vehicles, a month-on-month increase of 3.6%, but a year-on-year decline of 26.5%; Geely Auto ranked second with sales of 268,300 vehicles, a month-on-month increase of 1% and a year-on-year increase of 23.5% In addition, compared to November last year, FAW-Volkswagen returned to third place with a sales volume of 137,500 vehicles.

Other manufacturers with retail sales exceeding 100,000 vehicles that month include Chery Automobile, Changan Automobile, and SAIC-GM-Wuling, with sales of 117,100, 107,400, and 104,300 vehicles, respectively.

In this situation, car manufacturers are increasingly looking to expand overseas.

Since the beginning of this year, domestic car manufacturers have seen a favorable export situation. In the first 11 months of 2025, the export volume of domestic automobiles reached 6.343 million units, a year-on-year increase of 18.7%. Among them, the export of new energy vehicles reached 2.315 million units, nearly doubling compared to the same period last year.

In September, Chinese brands represented by BYD, SAIC MG, and Chery Automobile increased their market share in the European passenger car market to 7.4%, setting a new historical high.

The China Passenger Car Association pointed out that due to the higher profits from overseas sales, the trend of "if you don't go overseas, you will be eliminated" is evident, with export growth exceeding expectations.

Chen Xu, deputy secretary-general of the China Association of Automobile Manufacturers, predicts that by 2025, the total annual sales of automobiles in China are expected to reach 34 million units, with export sales expected to exceed 6.8 million units, indicating that the overall market still has strong growth potential.

In addition to technology and performance, cost control will also be a "survival essential" for car manufacturers.

Although car manufacturers have introduced various bottom-line solutions, there are still costs involved. The purchase tax incentives are borne by the companies, which means that the profit per vehicle is compressed.

According to data from the China Passenger Car Association, the average price of new energy vehicles is expected to drop from 185,000 yuan in 2023 to 156,000 yuan in 2025, putting pressure on profits. Cost control in any link, from battery raw materials to chip supply chains, from production lines to sales channels, is crucial.

Lang Xuehong believes that the current monthly penetration rate of new energy vehicles has exceeded 50%, far surpassing the early planning targets, and the policy retreat is timely. She emphasized that the industry will enter a new stage of sustainable development relying on endogenous power, and improving penetration rates in lower-tier cities and rural markets will become a key focus in the next stage, likely opening up new growth space.

"If the industry as a whole can achieve a growth rate of 5% next year, it would be a very optimistic estimate," said an industry insider. "In the future, after the subsidy retreat, new energy vehicle companies will have to rely entirely on the functionality, performance, and price of their products."

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