Foreign automakers are facing mounting challenges in China as domestic manufacturers consolidate their dominance in the world’s largest car market, driven by rapid growth in electric and plug-in hybrid vehicles and faster adoption of local technologies.
China’s so-called new energy vehicle (NEV) demand rose 18% in 2025, outperforming Europe and the United States, where electric vehicle growth has slowed. Even so, overall passenger car sales in China expanded by just 4% last year to 23.7 million units, marking the slowest growth in three years, according to industry data.
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Local manufacturers including BYD, Geely and Changan have benefited from their ability to roll out new technologies quickly and integrate vehicles with widely used domestic platforms such as WeChat and Alipay. Analysts say this responsiveness has put foreign brands at a disadvantage. Speaking to the Wall Street Journal, Xiao Feng warned that most overseas carmakers could be largely pushed out of China by 2030, with exceptions likely limited to global heavyweights such as Tesla, Toyota and Volkswagen.
Sales have also been shaped by generous government incentives. In 2025, trade-in subsidies of up to $2,900 helped drive around 11.5 million vehicle purchases. However, reports of local governments exhausting subsidy budgets contributed to a 14% drop in December sales, and Beijing is expected to scale back incentives in 2026. At the same time, intense price competition has eroded profitability, with a study by the China Automobile Dealers Association showing that only 30% of dealers were profitable in the first half of 2025.
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Foreign automakers have responded with restructuring rather than wholesale exits, though some have pulled back sharply. Mitsubishi ended manufacturing and sales in China, Jaguar Land Rover cut its product range, and Volkswagen halted production at its Nanjing plant. Even Tesla, long the strongest foreign player, saw sales fall about 5% and lost its position as the world’s top-selling EV brand to BYD. Others are doubling down: Toyota is building a new Lexus EV plant in Shanghai, Volkswagen plans China-specific models, and General Motors has said it will offer EV or plug-in hybrid versions across its lineup.