Workers inspect the vehicle’s paint finish and body surface on a light tunnel inspection line at a Changan Automobile factory. (Photo/Chongqing Daily)

Chongqing - China’s auto market is shifting gears: while domestic passenger vehicle sales fell 23.2% in June to 1.602 million units, exports surged 75.1% to 1.037 million units, with new energy vehicle exports hitting a record 523,000 units and overtaking gasoline-powered vehicles for the first time, industry data showed.

The figures point to a broader transformation in China’s auto industry, with global markets playing an increasingly important role in its next phase of growth.

Domestic sales slump as demand weakens

In the domestic market, retail sales of passenger vehicles totaled 8.701 million units in H1 2026, down 20.2% year on year, equivalent to a decline of about 2.2 million units in demand.

Fuel-powered vehicles recorded the steepest fall. Retail sales of fuel-powered passenger vehicles stood at about 600,000 units in June, down 39% year on year. New energy vehicles also came under pressure, with retail sales falling by more than 10% to 4.704 million units in H1 2026.

Several factors cause the market adjustment. Strong sales generated by the 2025 vehicle trade-in policy created a high comparison base. 

The purchase tax on NEVs was reduced from a full exemption to a 50% exemption this year, while purchases brought forward at the end of last year weakened demand this year. Continued price competition also increased consumer caution and extended vehicle replacement cycles.

As sales weakened, industry profitability also declined. Data from professional institutions showed that the average gross profit per vehicle fell from about 13,000 yuan (1921.06 U.S. dollars) last year to around 11,000 yuan. From January to May, the profit margin of China’s automobile manufacturing industry stood at just 3.4%.

Intensifying competition was another major factor behind the decline. More than 40 new models priced between 250,000 yuan and 500,000 yuan entered the market in H1 2026, while several leading automakers reported sharp profit declines. More companies are now looking overseas for new growth.

Exports become a new growth engine

China exported 5.096 million vehicles in H1 2026, up 65.3%. Technological competitiveness was a key driver of the rapid growth. 

With strengths in battery, motor and electronic control systems, smart cockpits, advanced driver-assistance systems and plug-in hybrid technology, Chinese NEVs move away from low-price competition and expanding overseas through stronger products and technology.

However, the export surge also reflects temporary factors. The European Union recently proposed extending anti-subsidy tariffs of up to 45% to plug-in hybrid vehicles that had previously been exempt. Brazil also announced that its import tariff on new energy vehicles would return to 35% from July.

In response, many automakers accelerated shipments before the new policies took effect, driving a short-term export surge. From January to May, China exported about 380,000 vehicles to Brazil, up 178% year on year. As overseas inventories rise, pressure on dealers to reduce stocks is expected to increase in H2 2026.

Meanwhile, growing trade protectionism is forcing Chinese automakers to adjust their global strategies. The model of manufacturing vehicles in China and selling them overseas faces greater challenges, prompting more companies to expand overseas manufacturing, supply chains and standards systems.

BYD’s plant in Hungary is expected to begin mass production this year. Changan Automobile plans to raise the share of locally sourced electric vehicle components at its Rayong plant in Thailand to 70% by 2027. Chery is reviving idle production capacity in Spain, while Leapmotor is expanding overseas through Stellantis’ sales network.

Chongqing accelerates its global auto expansion

As one of China’s major automobile production bases, Chongqing is also accelerating its overseas expansion. Changan Automobile sold 402,000 vehicles overseas in H1 2026, up 35.1%, in line with the broader expansion of Chinese new energy vehicles in global markets.

However, Chongqing’s auto exports still face several challenges, including a relatively low share of overseas revenue, limited localized production capacity and high battery and chip costs. Rising tariffs and local supply chain requirements also pose greater risks to companies that mainly rely on vehicle exports.

Under the new international competitive environment, Chongqing needs to accelerate overseas factory construction and knocked-down vehicle assembly, while supporting the coordinated expansion of vehicle manufacturing, auto parts, intelligent connected vehicle technologies and charging and battery-swapping systems.

It also make greater use of the New International Land-Sea Trade Corridor to strengthen its ability to respond to trade barriers. At the same time, companies should maintain regulatory compliance and expand localized operations, using high-quality products and services to strengthen the global competitiveness of Chongqing-made vehicles.