China’s stronghold in the electric vehicle market is pushing foreign automakers out of the domestic scene

China's Electric Vehicle Market Surges Ahead

China has further solidified its dominance in the global electric vehicle (EV) sector, with domestic manufacturers continuing to outpace their international competitors in the world's largest automotive market.

In 2025, sales of fully electric and plug-in hybrid vehicles in China reached nearly 13 million units, making up 54% of all car sales. This rapid adoption has allowed Chinese brands—led by companies like BYD and Geely—to capture almost two-thirds of the passenger car market, as most top EV producers aside from Tesla are local firms.

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While China saw an 18% increase in EV and plug-in sales, the shift away from gasoline vehicles has slowed in the United States and Europe. According to Cui Dongshu, secretary-general of the China Passenger Car Association, Chinese automakers excel in smart vehicle technology and are quicker to update their models, giving them a clear edge over many foreign brands.

CLSA analyst Xiao Feng predicts that electric and plug-in vehicles could make up about 75% of the Chinese market in the coming years. This trend could force most foreign automakers out of China by 2030, with only a few major players like Tesla, Toyota, and Volkswagen remaining.

Feng also noted that for many international car companies, catching up in the EV sector is now nearly impossible.

In contrast, American automakers are scaling back their EV ambitions due to regulatory shifts and tepid consumer interest. General Motors recently announced a $6 billion charge related to its underperforming EV division, following Ford's earlier $19.5 billion write-down, much of which was also tied to electric vehicles.

China's pure EV sales reached 7.9 million units last year—about six times higher than the estimated 1.3 million EVs sold in the U.S. in 2025, according to Cox Automotive, with U.S. sales remaining flat year-over-year.

Foreign carmakers are scrambling to adapt their China operations to maintain market presence. Volkswagen halted production at its Nanjing facility, and General Motors announced plant closures. GM also expects to record approximately $1.1 billion in charges in the fourth quarter related to its Chinese business.

Challenges and Shifts for Foreign Brands

Even Tesla, the most successful foreign brand in China’s EV market, is facing headwinds. Its Chinese sales dropped nearly 5% last year to around 626,000 vehicles, according to CPCA data. Globally, Tesla lost its position as the top EV seller to China’s BYD after two consecutive years of declining deliveries.

Volkswagen, historically the leading foreign automaker in China, is aiming for a comeback with a new lineup of models developed specifically for the Chinese market. Toyota is constructing a new Lexus EV facility in Shanghai, and GM plans to ensure all its new launches in China this year include electric or plug-in hybrid options. Meanwhile, Ford and Nissan are repositioning China as an export base to address surplus production capacity.

Competition remains fierce, with frequent promotions and price reductions. A survey by the China Automobile Dealers Association found that only 30% of dealerships were profitable in the first half of 2025, and nearly 75% sold at least some vehicles below cost.

Government Incentives and Market Trends

To stimulate demand, Beijing has offered purchase subsidies. In 2025, buyers could receive up to $2,900 when trading in an old car for a new electric or plug-in model. The government reported that 11.5 million vehicles were sold through this trade-in program last year.

However, some regions exhausted their incentive budgets by December, leading to a 14% year-over-year drop in passenger car sales for that month, with some consumers delaying purchases in hopes of better deals. The government plans to reduce certain subsidies in 2026.

Overall, China’s passenger car market grew by about 4% last year, its slowest rate in three years, reaching 23.7 million vehicles sold.

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