Abrupt drop in sales hits Asian automakers hard; understand how the end of incentives is changing the course of the automotive industry
The sharp slowdown in the Chinese market stagnated global sales of electric vehicles and plug-in hybrids earlier this year. Despite the increase in demand in Europe and emerging markets, the contraction in China and North America made the sector register a slight global drop of 0.2% in the period.
According to data from consultancy Benchmark Minerals, sales of new energy vehicles (NEVs) in China shrank by 17%, totaling 2.8 million units. The decline followed the downward trend of the local automotive market as a whole, which fell 19% and registered 5.6 million vehicles registered.
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The brake on domestic sales is directly linked to the end of part of the government incentives. Since the beginning of the year, buyers of electrified vehicles have been paying a 5% acquisition tax, in addition to facing the reduction of state subsidies. Added to this, the current Chinese economic uncertainty has led consumers to postpone buying high-value goods.
Outside the Asian powerhouse, the scenario was favorable in some regions. Europe recorded a growth of 26%, reaching 1.6 million electrified vehicles sold, while the other global markets jumped 89%, with 840 thousand units. On the other hand, North America suffered a 25% drop, limited to 450 thousand vehicles.
The weakening of domestic demand is already eroding the financial balance sheets of the local giants. BYD, which leads the energy transition, suffered a 55% drop in first-quarter net profit, falling to 4.1 billion yuan. Geely followed suit and saw its earnings fall 26% (4.2 billion yuan). The scenario is even worse for smaller brands: Leapmotor tripled its net loss to 390 million yuan, despite having doubled global sales volume.
To compensate for the internal losses, the solution found was to accelerate exports. In April alone, China shipped more than 400,000 electrified vehicles overseas. Year-to-date, the volume of exports hit 1.4 million units, more than double that recorded in the same period of 2025.
The turmoil increases pressure on smaller manufacturers, which are more vulnerable to cash shortages. Industry analysts assess that the current slowdown will force a rapid consolidation process in the Chinese automotive industry, which should trigger a wave of mergers, acquisitions and even the bankruptcy of automakers that cannot sustain the price war.
