The Chinese government recently reinstated a 5 percent purchase tax for new energy vehicles, likely impacting sales
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by Brad Anderson
6 hours ago
- BYD sold 205,518 cars in January, down from 300,538 last year.
- EV and plug-in hybrid sales both dropped compared to 2025.
- Analysts say Beijing may revive incentives if sales stay low.
Demand for electric cars in China may be cooling, and some of the country’s biggest automakers are starting to feel the chill. Several of the most prominent domestic brands, including BYD, Xpeng, and Xiaomi, reported noticeable drops in January sales.
Data shows that BYD sold 205,518 vehicles in China last month. The number sounds solid on its own, but it marks a sharp decline from the 300,538 vehicles the company moved in January 2025.
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Both BYD’s electric vehicles and plug-in hybrids were affected. Of the 205,518 vehicles sold last month, 83,249 were EVs and 122,269 were PHEVs. A year earlier, those numbers stood at 125,377 and 171,069 respectively. Exports took a hit too, dropping to 100,482 units in January from 133,172 in December.
Is Government Policy Slowing Sales?
These figures suggest weakening demand in China and possibly overproduction for overseas markets, but a recent government policy change may go some way to explaining the drop. As of January 1, the country reinstated a 5 percent purchase tax for new energy vehicles, having previously exempted them from a 10 percent tax for more than a decade, CNBC reports.
“We see increasing pressure on China’s auto market in 2026, driven by a combination of policy and competitive factors,” Helen Liu, partner at Bain & Company, told CNBC. She added that recent tax changes may prompt some consumers to delay purchases, while automakers hold back on new model launches.
“We know [EV sales will] slow, we just don’t know by how much,” added Tu Le, founder of Sino Auto Insights. “We’ll know much better after the first quarter is over.”
Rough Starts And Reversals
Xiaomi also struggled out of the gate. It sold 39,000 cars in January, which was an improvement over the same time last year, but a steep drop from the more than 50,000 EVs delivered in December. Xpeng’s January was even rougher. Sales fell 34.1 percent year-on-year to 20,011 units, and the month-on-month drop was starker still at 46 percent compared to December 2025.
Li Auto’s performance dipped as well, with deliveries slipping to 27,668 units for the month.
Competitors Capitalize
However, it’s not all bad news. One of the few bright spots was Aito, a newer brand backed by Huawei’s operating system, which reported more than 40,000 deliveries in January, marking a gain of more than 80 percent compared to the same month last year.
Sales at Leapmotor rose to 32,059, while Nio also reported an increase to 27,182 units. Geely sold more than 270,000 cars in January, a 1 percent increase year-on-year. Interestingly, its EV sales fell by 15 percent, while its PHEV sales rose 37 percent.
That performance has pushed Geely into second place in the country’s EV market behind BYD, thanks in part to strong momentum from its Galaxy and Zeekr brands.
Will China Step In?
The slowdown has fueled speculation that Beijing may step in once again. If the slump continues into the first quarter, analysts believe the government could reinstate certain subsidies or incentives
