While BYD Company (HK:1211) remains a global player in the electric vehicle market, a significant downturn in early 2026 has more to do with ‘The China’ factor than a material slowdown in demand for EVs globally.
Having been embroiled in a brutal domestic price war, BYD - the world’s largest electric car maker - recently lost its top car moniker in China to rival Geely Automobile Holdings (HK:0175) early in 2026, with the latter experiencing triple-digit growth in 2025.
A tapering off of recent stimulus policies – notably purchase tax exemptions – at a time when raw material costs are surging has seen a cooling off in consumer confidence.
This is weighing on demand, with buyers waiting for new model releases and further clarity on government trade-in initiatives before committing to purchases.
While China’s consumers aren’t abandoning EVs entirely, what they are doing is favouring Geely's more budget-conscious EVs (like the Geome Xingyuan/EX2) that are more competitively priced against or slightly cheaper than BYD’s offerings in China.
As a result, BYD’s vehicle sales dropped 41% in February and 30% in January.
However, much of BYD’s total sales downturn appears to be confined to China – down 65% in February – while overseas shipments remain relatively robust.
While BYD is struggling to defend its market share locally, BYD’s international expansion has helped it sustain volume growth, especially in key markets across Latin America and Europe now central to the company’s strategy.
Consumer confidence aside, investor anxiety regarding the profit outlook for China’s EV sector saw a relentless sell-off in BYD shares last month.
But while the stock has managed to retrace those losses, it is still trading around 30% lower than its most recent high of 23 May 2025.
BYD’s Hong Kong-listed shares dropped by around 7% following disappointing sales data in early February and are down 16% in the last week on the back of February’s sales slump in China.
Meanwhile, reduced government subsidies and disruption from artificial intelligence (AI) appear to be adding to a weaker outlook for EV growth this year.
The runaway cost of battery materials and memory chips is also expected to further curb automakers’ profit margins.
Morgan Stanley reports that most local automakers anticipate a 30-40% drop in first-quarter volumes compared to the December quarter.
Xiao Feng, co-head of China industrial research at CLSA in Hong Kong, recently noted that investor sentiment is extremely negative.
Meanwhile, what’s also fuelling already heightened investor fear is the likelihood of major earnings downgrades this year.
Unsurprisingly, the market is now questioning the long-term profitability of EV manufacturers within China’s domestic market, which is something it previously took for granted.
Despite [EV] exports still being a positive area, investors are concerned that Chinese car manufacturers remain heavily dependent on the highly competitive domestic market, where consumer confidence remains delicate.
While EVs’ share of the global automotive market rose to 26% in 2025 - to around 20.7 million units - an expected slowdown in 2026 is being attributed to a politically driven collapse in U.S. sales, along with the market cooling in China following the expiration of subsidies and scrappage schemes.
There’s also growing speculation that within a few years, China will cease to function as the driving force of car electrification, as more and more regions approach market saturation.
The EV market share in China has already exceeded the all-important 50% threshold.
With financial support being scaled back, 2026 sales are expected to grow by around 10% to 15.6 million electric cars.
Meantime, while strong headwinds from Washington caused sales to contract slightly last year, it’s expected to be another growth year within the EU market, exceeding 20%-plus anticipated growth, reaching 3.5 million electric vehicles, with the sales crisis experienced in 2024 now behind it.
But with the Chinese market approaching [EV] saturation, its days as the driving force of car electrification globally appear to be numbered, and this will clearly give investors in the sector cause for concern.
