China's auto market is on track for its worst sales performance since 2021, with new car deliveries falling sharply in the first half of the year.
However, the downturn is not being driven by electric vehicles.
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According to the China Passenger Car Association (CPCA), passenger vehicle deliveries totaled 8.7 million units through June, a decline of 20.2 percent year-over-year.
The industry body projects total sales of 20.4 million units for the full year, which would represent a 14 percent drop from 2025's 23.7 million units.
Some analysts believe even that forecast may be too optimistic.
Xiao Feng, head of Hong Kong/China Industrials Research at Citic CLSA, told CNBC that full-year sales could fall 20 percent from last year.
He also predicts that new energy vehicle sales, including plug-in hybrids and battery-electric vehicles, will decline by roughly 5-6 percent this year.
ICE Sales Plummet Amid Rising Oil Prices
The primary culprit behind the overall sales slump is the internal combustion engine segment.
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In June, ICE sales plunged 39 percent year-on-year, accounting for 78 percent of the total market decline.
Rising oil prices, triggered by the conflict in Iran, have been a major factor.
Additionally, the Chinese government has reduced some of its support for EVs, while costs for lithium and advanced chips have increased.
A rebound may be on the horizon.
Feng expects a strong recovery in consumer demand next year, boosted by a surge in exports from Chinese automakers.
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As the market undergoes consolidation, he predicts that only seven or eight major EV companies will remain in China by 2030, with foreign brands likely facing significant challenges and possibly exiting the market entirely.
