China’s Car Sales Are Tanking - But Electric Vehicles Aren’t the Problem

China’s auto industry is hitting a rough patch. 2 percent drop compared to the same period last year, according to the China Passenger Car Association. 7 million. If that holds, 2026 will be the worst year for Chinese auto sales since 2021.

Some analysts think even that forecast is too rosy. Xiao Feng, head of Hong Kong/China Industrials Research at Citic CLSA, told CNBC he expects full-year sales to fall 20 percent from last year. The real drag? Gas-powered cars. In June alone, internal combustion engine sales dropped 39 percent year-over-year, accounting for 78 percent of the overall market decline.

Rising oil prices, tied to the conflict in Iran, are a major factor. Meanwhile, electric vehicle sales are only expected to slip 5 to 6 percent this year.

The government has also dialed back some EV incentives, and costs for lithium and advanced chips have climbed. But a turnaround may be coming. Feng predicts a strong rebound in consumer demand next year, fueled by a surge in exports from Chinese automakers. As the market shakes out, he expects only seven or eight local EV makers to survive by 2030.

Foreign brands, he says, will struggle to compete and many may leave China entirely.