Domestic passenger vehicle demand in China remained pressured through 2Q26, with exports still the industry’s main bright spot
AI summary card
Domestic passenger vehicle demand in China remained pressured through 2Q26, with exports still the industry’s main bright spot
Nomura believes China’s auto sector remains in a transition phase in 2026, with domestic demand likely to improve only sequentially rather than reverse, while EV penetration and overseas exports support structural opportunities.
- In June, China passenger vehicle wholesale sales were 2.4 million units, down 5.3% year-on-year and up 6.6% month-on-month; excluding micro vans, retail sales were 1.6 million units, down 23.2% year-on-year.
- In June, passenger vehicle EV retail sales were 1.0 million units, down 9.3% year-on-year but still better than internal combustion vehicles; EV retail penetration reached 62.3%.
- In 1H26, passenger vehicle wholesale sales were 12.7 million units, down 6.0% year-on-year; retail sales were 8.7 million units, down 20.1%, near a low since 2020.
- Exports were the sector highlight: China passenger vehicle exports reached 905,000 units in June, up 80.3% year-on-year; EV exports were 500,000 units, up 154% year-on-year.
- Nomura expects domestic demand may improve sequentially in 2H26, but year-on-year domestic declines may still be double-digit for the full year, with overseas growth continuing to support the sector.
Report interpretation
Overview
This report tracks the China auto and EV sector in 2Q26 and June. The core conclusion is that domestic passenger vehicle retail has declined more than 20% year-on-year for three consecutive months, indicating demand remains weak, but EVs continue to outperform internal combustion vehicles and penetration remains rising. Nomura views 2026 as a transition year for China’s auto industry from price competition toward technology, quality and brand competition, with no significant recovery likely in the near term and overseas exports becoming the industry’s most important growth pillar.
Core views
Nomura expects no major policy shifts in the remainder of 2026, so domestic demand is likely to continue the weak pattern of 1H26, with possible sequential improvement in 2H26 and 4Q26 modestly better than 1H26, but not a full reversal story. Competitive focus is moving from price cuts to technology platforms, quality and brand recognition. BYD’s new models Great Tang and Seal O8, supported by ultrafast charging, have seen relatively strong demand and may help improve future domestic performance; Leapmotor, HIMA, NIO and Xiaomi are performing strongly in EV market share gains; Li Auto still faces challenges as the new L9/L8 series has received below-par market response.
Analysis framework
The report primarily uses CAAM and CPCA published data on wholesale, retail, exports, model mix and brand share, assessing sector momentum through year-on-year, month-on-month, penetration, market share and export performance, while incorporating policy tone, BOM costs, price competition, product technology upgrades and overseas demand to judge 2H26 sector trends.
Methodology notes
Judging industry demand strength by examining wholesale, retail, year-on-year and month-on-month changes.
The report compares June and 1H26 passenger vehicle wholesale and retail data, as well as EV retail data, on a year-on-year and month-on-month basis to conclude that the domestic market remains weak but is improving sequentially.
Using EV penetration and BEV versus PHEV/EREV shares to gauge the electrification trend.
June EV retail penetration reached 62.3%, and BEVs accounted for 68.0% of EV sales, indicating continued resilience in electrification.
Comparing major automakers’ sales, shares and share changes to identify winners and laggards.
The report notes that Geely regained domestic leadership in 1H26, while BYD’s share declined; Leapmotor, HIMA, NIO and Xiaomi were among EV players with more visible share gains.
Setting target prices using sum-of-the-parts or discounted cash flow valuation for different companies.
BYD’s target price of HKD127.00 is based on SOTP valuation, while NIO’s target price of USD8.60 and XPENG’s target price of USD23.00 are based on DCF valuation.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China auto and EV industryCore industry theme covered by the report
- Strengths
- EV penetration continues to rise, export growth is strong, and supply chain maturity is improving.
- Weaknesses
- Domestic demand is weak, 1H26 retail sales are at a low since 2020, and the inventory warning index is above the threshold.
- Comparison
- EV performance is significantly stronger than internal combustion vehicles, and overseas market performance is significantly stronger than domestic performance.
- Risks
- No additional policy support, continuation of price competition or cost pressure, and domestic demand recovery slower than expected.
- BYD 1211 HKKey company covered, rated Buy
- Strengths
- New models such as Great Tang and Seal O8 have ultrafast charging capability and the Blade Battery 2.0 models and battery capacity ramp-up may improve domestic performance; EV exports remain on growth.
- Weaknesses
- In June, domestic EV retail declined 36.2% year-on-year, EV share declined by 9.4 percentage points year-on-year; 1H26 market share also fell.
- Comparison
- Still an EV market leader, but share is under pressure from competitors including Geely, Leapmotor, HIMA, NIO and Xiaomi.
- Risks
- Intensifying competition may compress margins or share; overseas expansion may lag expectations; demand lift from technology upgrades may fall short.
- NIO Inc NIO USKey company covered, rated Buy
- Strengths
- June retail was 40,500 units, +62.6% y/y and +7.7% m/m; 1H26 market share improved.
- Weaknesses
- Still needs new model pipeline to continue driving sequential improvement in sales.
- Comparison
- Share gains are relatively visible among major EV brands, outperforming the overall domestic market.
- Risks
- Capacity ramp-up may lag, new models may fail to win further share, and cost savings may be weaker than expected.
- XPENG Inc. XPEV USKey company covered, rated Buy
- Strengths
- June retail was 32,600 units with a +27.0% month-on-month improvement; the report expects new model pipeline may drive further sequential sales improvement.
- Weaknesses
- 1H26 passenger vehicle retail ranking still shows XPENG sales down 24.7% year-on-year.
- Comparison
- Near-term sequential performance improved, but compared with high-growth peers such as Leapmotor and NIO, it still needs to prove new model momentum.
- Risks
- 2026 new model growth below expectations, further intensification of competition in China, and slower-than-expected progress in robotaxi and humanoid robots.
- GeelyKey domestic passenger vehicle and EV competitor
- Strengths
- Returned to domestic leadership with 1,021,300 units in 1H26; June EV share remained relatively stable.
- Weaknesses
- 1H26 sales declined 16.7% year-on-year, indicating still affected by broader demand weakness.
- Comparison
- 1H26 total sales exceeded BYD, with 11.7% market share.
- Risks
- Ongoing weak domestic demand and heightened competition may limit share and margin recovery.
- LeapmotorEV market-share improver
- Strengths
- June retail up 61.1% year-on-year; 1H26 passenger vehicle sales up 33.7% year-on-year; EV share improved clearly.
- Weaknesses
- Still in a share expansion phase; profitability and brand resilience still need ongoing confirmation.
- Comparison
- One of the most pronounced sales-growth players in mass-market EVs.
- Risks
- Competitive retaliation from peer new models, pricing pressure and scaling quality risks.
- Li AutoDomestic pressure stock mentioned in the report
- Strengths
- Still has a meaningful sales base, with 30,900 units in June retail.
- Weaknesses
- June retail declined 14.8% year-on-year and 7.4% month-on-month; market reception of the new L9/L8 series was below expectations.
- Comparison
- Compared with NIO, XPENG and Leapmotor, short-term sales momentum is weaker.
- Risks
- Persistent weak response to new models, ongoing share loss, and domestic demand recovery slower than expected.
Key data
- June China passenger vehicle wholesale sales2.4 million units, -5.3% y/y, +6.6% m/mSource is CAAM. Domestic demand weakness is evident, but overseas growth partly offsets it.
- June China passenger vehicle retail sales1.6 million units, -23.2% y/y, +6.1% m/mExcluding micro vans, source is CPCA. For the third consecutive month, year-on-year decline is over 20%.
- June China passenger vehicle EV retail sales1.0 million units, -9.3% y/y, +6.0% m/mEVs continue to outperform internal combustion vehicles; ICV retail sales in China were down about 39% year-on-year.
- June EV retail penetration62.3%The report believes electrification in the Chinese auto market is irreversible.
- 1H26 China passenger vehicle wholesale sales12.7 million units, -6.0% y/y1H26 is overall a sector transition period.
- 1H26 China passenger vehicle retail sales8.7 million units, -20.1% y/yExcluding micro vans, this is at a low level since 2020.
- 1H26 China passenger vehicle EV retail sales4.7 million units, -13.6% y/yEV retail is down year-on-year but still stronger than internal combustion vehicles.
- June China passenger vehicle exports905,000 units, +80.3% y/y, +11.8% m/mExports are described as the only bright spot for China’s auto industry.
- June China EV exports500,000 units, +154% y/yGrowth is clearly faster than internal combustion vehicle export growth.
- June China internal combustion vehicle exports364,000 units, +33% y/yOverseas markets are still growing, but at a pace below EVs.
- YTD auto exports4.4 million units, +72% y/yOverseas operations are offsetting weakness in the domestic market.
- June BYD EV retail224,500 units, -36.2% y/y, +8.2% m/mEV retail share is 22.3%, down 9.4 percentage points year-on-year; pipeline expansion of new models and battery capacity ramp-up may improve subsequent performance.
- June Leapmotor retail72,400 units, +61.1% y/y, +17.9% m/mMarket share is 7.2%, making it one of the stronger mass-market EV growth cases.
- June inventory warning index57.2%Still above the alert threshold, reflecting pressure in domestic demand.
Impact & implications
For investors, the report signals a structural rather than broad-based recovery. Total domestic auto demand remains under pressure, and fading price competition plus rising costs may weigh on near-term sales and profits. At the same time, technology upgrades, ultrafast charging, brand strength and export capability will be key differentiators of automaker performance. Firms with export chains and mature EV supply chains plus overseas expansion capabilities are more likely to benefit, while companies relying on single-model cycles or facing weak new model reception in China carry higher risk.
Risks
- Domestic auto demand continues to be weaker than expected, causing sequential improvement in 2H26 to fall short.
- Price competition intensifies again, compressing automakers’ margins and market shares.
- BOM costs rise, including battery, storage and raw material costs, putting pressure on profitability.
- Overseas expansion grows slower than expected, and exports cannot continue to offset domestic weakness.
- No new policy support, with anti-compression and subsidy tightening affecting some price-sensitive models.
- Demand uplift from new models or technology platform upgrades is lower than expected.
What to watch
- Whether 2H26 domestic passenger vehicle retail sales improve from a consecutive year-on-year decline of over 20%.
- Whether 4Q26 shows more pronounced sequential recovery on a low base.
- Order intake and delivery ramp for BYD Great Tang, Seal O8 and Blade Battery 2.0 models.
- Whether China EV export growth can remain strong, especially changes in top-tier automaker share in overseas markets.
- Whether Leapmotor, HIMA, NIO and Xiaomi’s share gains are sustainable.
- Whether the inventory warning index falls below the alert line.
- The intensity of policy execution on subsidies, price competition and anti-competition/anti-overheating measures.