China Auto Market Turns Electric as Combustion Sales Keep Falling
China’s auto market has crossed a historic threshold as electric vehicles officially surpass traditional combustion cars, cementing a transformation that has been unfolding for nearly a decade.
- EV sales in China topped combustion cars for the first time, hitting a record 13.1 million units.
- ICE vehicle sales fell 13% in 2025 to the lowest level in 15 years.
- EV growth remains dominant, but competition and policy changes are starting to slow momentum.
Sales of electric vehicles in China climbed to a record 13.1 million units last year, overtaking internal combustion engine (ICE) car sales for the first time on record. In contrast, ICE vehicle sales dropped 13% year-on-year to 12.3 million in 2025, the weakest level seen in 15 years and the eighth consecutive annual decline.
A Decade-Long Collapse in ICE Sales
The downturn in combustion-engine vehicles is not a short-term fluctuation. Since peaking in 2017, ICE sales have fallen by roughly 49%, a decline of around 11.6 million vehicles. The charted trend shows a steady erosion over the past decade, with volumes now less than half their peak levels.
Looking ahead, projections point to an even wider gap. By 2030, China is expected to sell about 21.2 million electric vehicles annually, compared with just 4.9 million combustion-engine cars, signaling a near-complete reversal of the market structure that once dominated global auto sales.
EV Momentum Slows as Market Pressures Build
Despite the historic milestone, the electric vehicle sector is beginning to show signs of strain. Chinese EV leader BYD reported its weakest monthly domestic sales in nearly two years in January, highlighting softer consumer demand and intensifying competition.
Several major brands, including Xiaomi and Xpeng, also posted sharp month-on-month declines. Analysts warn that oversupply, price competition, and cautious consumer sentiment are weighing on near-term sales across the industry.
Policy Shifts Add Uncertainty to Demand
Policy changes are compounding the pressure. From January 1, China reinstated a 5% purchase tax on new energy vehicles after more than a decade of generous exemptions. The move has raised concerns that buyers may delay purchases, particularly as automakers rethink pricing strategies and model launches in a crowded market.
At the same time, a fierce price war is reshaping the competitive landscape, forcing manufacturers to offer more features at lower prices and squeezing profit margins across the sector.
Global EV Policies Begin to Diverge
China’s rapid transition is influencing policy debates globally, but other governments are beginning to chart different paths. In Canada, Prime Minister Mark Carney has repealed the country’s mandate requiring all new car sales to be electric within a decade.
Instead, Ottawa plans to introduce stricter greenhouse gas emission standards for vehicle models produced between 2027 and 2032. The government expects the revised framework to result in electric vehicles making up 75% of new car sales by 2035, a lower target than the previous mandate but still an ambitious shift.
A Structural Shift That Is Hard to Reverse
China’s EV takeover of combustion-engine vehicles marks a turning point for the global auto industry. While growth is no longer frictionless and competition is intensifying, the long-term direction appears clear: internal combustion engines are rapidly losing relevance in the world’s largest car market, even as the global race to dominate electric mobility enters a more challenging phase.
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