Nomura: YoY decline in China's domestic auto sales in May may widen to 21.6%

Overview

In this Asia chart flash note, Nomura focuses on China's auto market, with the core view that the divergence between weak domestic auto sales and strong exports in 2026 will persist. Citing early CPCA estimates, the report believes the YoY decline in domestic auto sales in May may widen to 21.6%, mainly due to the reduced intensity of the trade-in policy and the rebound effect from the new energy vehicle purchase tax rising from 0% to 5%.

Core views

The report's core views are: first, domestic auto sales remain in a clear downtrend and may continue to weigh on economic growth; second, auto exports are maintaining rapid growth, with April YoY sales growth rising to 84.1%, reflecting the support from higher overseas energy prices for demand for China's new energy vehicles; third, the export scale remains too small to offset the decline in domestic demand, so the divergence between external and domestic demand will continue to widen in 2026.

Analysis framework

The report mainly uses high-frequency industry sales estimates, YoY growth comparisons, and export share analysis, linking domestic sales, export sales, and the auto industry's contribution to GDP to assess the impact of changes in the auto market on China's macro growth.

Methodology notes

• High-frequency industry trackingCPCA early sales estimate

  YoY growth in domestic auto sales

  Track monthly sales changes through the early estimates from the China Passenger Car Association and compare them with April and Q1 growth to judge whether demand weakness is deepening.

• Macro impact assessmentAuto industry GDP share

  Drag from the auto industry on economic growth

  The report cites prior analysis showing that the auto industry accounts for about 3.2% of GDP, so sustained declines in domestic sales may create a material drag on macro growth.

• Domestic vs. external demand divergence analysisComparison of domestic sales and export sales

  Whether export growth can offset weak domestic demand

  The report compares the decline in domestic sales, the rise in export growth, and the share of exports in total sales and total value to assess the extent to which strong export growth can hedge the overall auto market.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China auto sector

  Directly related

  Strengths

  Export sales continue to grow at a rapid pace, and higher overseas energy prices are improving the appeal of China's new energy vehicles.

  Weaknesses

  The YoY decline in domestic sales has widened, and policy fading plus higher purchase taxes are creating pressure on demand replenishment.

  Comparison

  The export side is clearly stronger than the domestic side, forming a persistent divergence between external and domestic demand.

  Risks

  Persistently weak domestic demand may weigh on capacity utilization, profitability, and the macro contribution of the industry.

• China new energy vehicles

  Beneficiary from exports

  Strengths

  Rising oil and gas prices are boosting global demand for China's new energy vehicles, and energy disruptions are giving Chinese automakers a relative advantage.

  Weaknesses

  The domestic new energy vehicle purchase tax has risen from 0% to 5%, which may weaken local car-buying demand.

  Comparison

  Improving overseas demand contrasts with fading domestic policy support.

  Risks

  If overseas demand slows or trade restrictions increase, the export hedge capacity could weaken.

• China macro growth

  Negative impact

  Strengths

  Export growth provides partial support to manufacturing and automaker revenues.

  Weaknesses

  The auto industry accounts for about 3.2% of GDP, so declining domestic sales may become a drag on economic growth.

  Comparison

  Strong external demand is not enough to fully offset weak domestic demand.

  Risks

  A continued divergence between external and domestic demand may exacerbate imbalances in the growth structure.

Key data

• YoY growth in domestic auto sales in May-21.6%According to CPCA early estimates, the decline widened further from April and Q1.
• YoY growth in domestic auto sales in April-20.0%Used as the comparison baseline for the May estimate.
• YoY growth in domestic auto sales in Q1-17.0%Shows that the decline in domestic sales deepened in Q2.
• YoY growth in auto export sales in April84.1%According to CPCA data, growth accelerated further from Q1 export growth.
• YoY growth in auto export sales in Q160.7%Export growth was already at a relatively high level.
• Auto industry GDP share3.2%The report says prior analysis shows the auto industry accounts for about 3.2% of GDP.
• Exports as a share of total sales in 202519%Based on this, the report judges that exports are unlikely to fully offset weak domestic demand.
• Exports as a share of total value in 202515%The share of export value is lower than the share of sales volume.

Impact & implications

At the macro level, the continued decline in domestic auto sales means that consumption and manufacturing-related chains remain under pressure, and the auto industry's contribution to GDP may weaken. At the industry level, overseas demand and new energy vehicle exports from Chinese automakers remain resilient, but because exports account for a limited share, overall industry conditions are still constrained by the weakness of the domestic market.

Risks

• The demand replenishment effect after the fading of the trade-in policy may last longer than expected.
• Higher new energy vehicle purchase taxes may continue to suppress domestic car-buying demand.
• Because exports account for a limited share, overseas growth may not fully offset the decline in the domestic market.
• If global energy prices fall or the external trade environment worsens, growth in China auto exports may slow.

What to watch

• Whether the official May auto sales data to be released by CPCA will confirm the 21.6% YoY decline.
• Whether China re-steps up the auto trade-in policy or introduces local subsidy support.
• The continued impact of new energy vehicle purchase tax changes on monthly sales.
• Whether auto export growth can remain at a high level, and whether the share of exports in total sales and total value rises.
• The extent to which weak domestic auto sales are transmitted to consumption, industrial production, and GDP growth.