The Chinese automotive market is on pace for its best year ever. In the first half of 2025, new light vehicle sales exceeded 14.7 million units – a stellar 10.5% increase compared with the same period the previous year.
Consumers are enjoying the fruits of a relentless price war, but under the hood, carmakers are feeling the pressure. According to the National Bureau of Statistics, industry revenue for automobile manufacturers grew by only 8%, while profits rose by just 2.6%, highlighting the rising costs associated with aggressive sales strategies.
Auto industry shows signs of consolidation
For the last decade, the Chinese government has incentivised the New Energy Vehicle (NEV) industry with generous subsidies. Local governments, eager to create jobs, attracted both new and established companies to build capacity. The shift from internal combustion engines to electric vehicles (EVs) lowered entry barriers.
The subsidy-induced gold rush has created a flywheel effect: dozens of new brands have entered the market, often with little to distinguish their models from competitors. Industry surveys indicate that Chinese consumers weigh price, brand, safety, and technology differently depending on the segment – but in the mass market, affordability is consistently the dominant factor. This has tilted the advantage towards carmakers capable of producing at scale, where cost leadership matters more than design or durability.
The top five brands now control about 40% of China’s new vehicle market, compared to just 32% in 2021
Source: Euromonitor International
BYD has pulled ahead decisively – in the first half of 2025 the brand sold nearly two million units, followed by Geely and Chery, each delivering around 1.2 million units. But this success story hides a parallel reality: foreign giants such as Honda, Nissan and Buick are steadily losing ground, while Volkswagen – China’s long-standing market leader – has been forced onto the defensive. Chinese carmakers have gained the edge through rapid EV adoption, aggressive pricing, and tech features that resonate with younger buyers. Foreign brands, slower to adapt and priced higher, are being squeezed out of the mainstream market.
Long-term growth limited as the industry enters maturity
There are currently 129 brands selling vehicles in China. 2025 marks the first annual decline, after the number of active brands peaked at 132 in 2023 and 2024. Continued price competition suggests that the number of active brands will decline in the coming years. Media reports indicate that discussions between carmakers are intensifying, with mergers and cost-sharing agreements increasingly on the table.
Another factor is consumer demand. The working-age population is now at a tipping point, set to decline from 0.9 billion in 2025 to 0.8 billion by 2040, while rising urbanisation and the growth of shared mobility services – from ride-hailing to carsharing – may further reduce demand for private car ownership.
The apparent stability in China’s auto market tells only half the story. Beneath record sales and rapid growth lies an industry under mounting strain, squeezed by price wars, burdened by overcapacity, and fragmented by too many brands. As consolidation accelerates and demand approaches its natural ceiling, only the largest and most innovative players are likely to thrive. Forecasts suggest the market is entering a period of stagnation, with annual light vehicle sales expected to plateau around 30-32 million units through to 2040. For Chinese carmakers, growth will increasingly depend on consolidation, efficiency, and expansion into export markets rather than domestic demand alone.
Read our article, Five Key Drivers for the Rise of Chinese Electric Vehicle Manufacturers in Southeast Asia, for more analysis on the Chinese electric vehicle manufacturers.