The slight recovery driven by mid-year volume surges in June has fueled expectations for a turnaround in the auto market's trajectory in July. However, upon entering the traditional off-season, the pull-forward effect of volume surges, coupled with disruptions from extreme weather, quickly returned the auto market to a low-platform operation driven by real demand. The latest forecast from the China Passenger Car Association (CPCA) shows that retail sales of narrow passenger vehicles in July are expected to reach 1.52 million units, down 5.1% month-on-month and 16.8% year-on-year.
Against the backdrop of overall volume pressure, structural fission continues to accelerate. Leveraging advantages in product iteration and cost-effectiveness, new energy vehicles (NEVs) have demonstrated market resilience far exceeding that of internal combustion engine (ICE) vehicles. The retail penetration rate is expected to climb further from 62.9% in June to 64.5%, steadily consolidating its dominant market position.
No Turnaround in Total Volume; Market Returns to Real Demand-Driven Operation
Data from the CPCA shows that retail sales of narrow passenger vehicles reached 1.602 million units in June, down 23.2% year-on-year and up 6.1% month-on-month. However, as the institution noted, the phased recovery in the auto market in June was not primarily driven by a substantive warming on the consumer end, but rather by promotional drives and the centralized delivery of new vehicles under the pressure of mid-year assessments.
This volume surge, pushed up by the automakers' pacing, is essentially a pull-forward of future demand, laying the groundwork for the seasonal decline in July.
From a weekly perspective, the pullback characteristics following the overdraft are very clear. In the first week of July, the market took the lead in entering a seasonal pullback, with average daily retail sales of only 34,000 units. In the second week, disrupted by localized extreme weather, terminal recovery remained weak, and average daily retail sales saw a slight month-on-month increase to 39,000 units. In the third week, high temperatures continued to suppress travel and car-buying demand, leading to weak terminal foot traffic. Although average daily retail sales rebounded to 47,000 units, the trend remained weaker than the conventional seasonal level.
The CPCA forecasts that the market will continue its low-platform operation in the fourth and fifth weeks, maintaining a year-on-year decline of around 17% for the whole month, ultimately landing at a retail scale of approximately 1.52 million units.
Beyond the pull-forward of volume, multiple external factors are also suppressing the auto market's performance in July. Since the onset of summer, many regions across the country have experienced sustained high temperatures, heavy rain, and floods. Foot traffic at offline stores has dropped significantly, and the pace of terminal deliveries has been disrupted by logistics bottlenecks and other factors. For an auto market already in its traditional off-season, extreme weather has further amplified the seasonal slump, continuously suppressing consumers' willingness to purchase vehicles.
Weakness at the macro-consumption level is a deeper reason for the pressure on the auto market. Data from the National Bureau of Statistics shows that in the first half of 2026, the total retail sales of consumer goods increased by 1.3% year-on-year, with the domestic consumer market operating steadily overall. However, the total retail sales of automotive consumer goods decreased by 12.6% year-on-year, becoming the main drag on bulk consumption. Residents' income expectations and employment confidence have not fully recovered, and a wait-and-see attitude with cash in hand is prevalent among car-buying groups. In particular, the decline in purchasing power among entry-level consumer groups directly restricts the overall expansion of the auto market.
The adjustment effects on the policy front are also continuously being released and influencing the market pace. A market analyst at Gasgoo Research points out that in 2026, the "Two New" policies shifted from fixed-amount support to price-proportion support. Coupled with the phase-out of purchase tax subsidies for NEVs, this has formed a significant impact on the mid-to-low-end market, which is also a crucial reason for the continuous weakening of domestic demand since the beginning of the year.
However, the market is not entirely without support. The continuous advancement of the trade-in policy has provided a bottom-line lifting force for the auto market. Meanwhile, the sequential entry of multiple blockbuster new models into the volume delivery phase has also offset the demand decline during the off-season to a certain extent. It is precisely under the dual support of policies and new products that, although the auto market in July showed a seasonal decline, it did not experience a free-fall drop, maintaining an overall steady operation on a low platform.
Deepening Structural Divergence and Accelerated Reconstruction of Camp Landscape
Compared to short-term fluctuations in total volume, the structural changes behind the data are more capable of dictating the long-term trajectory of the industry landscape. This divergence is first reflected in the rise and fall of ICE vehicles versus NEVs, with the gap continuing to widen.
June data shows that ICE vehicle retail sales reached 591,000 units, a substantial year-on-year drop of 38.9%. In contrast, NEV passenger car retail sales reached 1.007 million units, down 9.4% year-on-year, a much smaller decline than that of ICE vehicles. Entering July, this resilience difference is further highlighted: NEV retail sales are expected to be around 980,000 units, showing only a flat to slight month-on-month decrease, while ICE vehicles will continue a more significant contraction. Amid this shift, the NEV retail penetration rate in July is expected to rise to 64.5%, another 1.6 percentage points increase from June, further solidifying the market pattern where NEVs outpace ICE vehicles.
First-half data better illustrates the long-term trend: cumulative NEV passenger car retail sales reached 4.704 million units, down 14.0% year-on-year, with a penetration rate of 54.1%. Cumulative ICE vehicle sales in the first half reached 3.996 million units, down 26.4% year-on-year, with market share accelerating its shrinkage. Driven by external factors such as oil price fluctuations, the structural reshuffle of the auto market is accelerating, and the trend of NEVs steadily maintaining their dominant position in the passenger car market has become irreversible.
The NEV market itself also presents a divergent trend; not all technological routes can reap the industry dividends. Although the CPCA did not release retail data for segmented technological routes in its July forecast, looking at the June data, CPCA Secretary-General Cui Dongshu explicitly pointed out that the performance of plug-in hybrid electric vehicles (PHEVs) and extended-range electric vehicles (EREVs) is far weaker than that of battery electric vehicles (BEVs). The characteristic of "extremely strong BEV performance" is very clear.
The divergence among brand camps is also unfolding simultaneously, with the dominant position of domestic brands continuing to consolidate. In June, domestic brand retail sales reached 1.1 million units, with a domestic retail share of 68.6%, a year-on-year increase of 4.5 percentage points.
A market analyst at Gasgoo Research stated that the share breakthrough of domestic brands is far from the endpoint, but rather a new starting point. Relying on the dual advantages of NEVs and intelligentization, coupled with the explosive growth in the export market, domestic brands are forming a positive cycle, and their market leadership will continue to be strengthened.
The situation for joint venture (JV) brands remains difficult. In June, mainstream JV brand retail sales reached 330,000 units, down 34% year-on-year, with the continuous collapse of their ICE vehicle base being the core reason. However, an easily overlooked signal is that the electrification transformation of JV brands is showing results: in June, mainstream JV brand NEV retail sales increased by 45% year-on-year, while domestic brand NEV retail sales decreased by 11% year-on-year. Although the absolute volume of JV NEVs remains small, with a domestic retail share of only 4.3%, the gradual volume increase from the deployments of giants such as Volkswagen, Toyota, and General Motors in the BEV and PHEV fields means that the competition between domestic and JV brands in the NEV track will enter a more intense phase.
Furthermore, exports have become the core growth pole to hedge against weak domestic demand, and also the most certain growth mainline for the auto market in 2026. Gasgoo Research forecasts that the annual export scale is expected to reach 8.5 million units, a year-on-year increase of 40%. The explosive growth in exports has also become a crucial support for the continuous rise in the share of domestic brands.
Turnaround Requires Further Momentum; Second-Half Market Breeds Turning Points
July serves not only as an observation window for bottom-building during the off-season but also as a critical turning point for the industry's trajectory in the second half of the year. Multiple policy milestones are landing intensively this month, resonating with the market cycle. This will profoundly affect the subsequent operation pace and competitive landscape of the auto market, while also accumulating momentum for the subsequent market turnaround.
First is the official implementation of the new national standard for NEV safety. Starting in July, mandatory requirements such as collision safety and "no fire upon thermal runaway" for batteries will take full effect, significantly raising the industry's technological threshold. On the one hand, this policy will force automakers to increase their investment in safety technology, thereby extending the development costs and certification cycles for mainstream products. On the other hand, it will accelerate the clearance of low-end capacity, with some lower-tier models lacking sufficient technological reserves facing facelift or even elimination pressures. The CPCA judges that after the implementation of the new safety regulations, the focus of market competition will further tilt towards safety and technological strength, and the trend of "value-driven" replacing "price-driven" will become more apparent.
Another key policy is the adjustment of the vehicle and vessel tax. An announcement released in early July clarified that hybrid models will no longer enjoy tax exemption policies starting in 2027, sending a clear signal of "equal rights for ICE and electric vehicles." This policy directly strengthens the policy advantages of BEVs and will also guide consumer expectations towards the BEV route, further consolidating the mainstream status of pure electric vehicles. Cui Dongshu judges that BEVs are the ultimate direction for future development. With the rapid improvement of flash charging, fast charging, and battery safety technologies, consumer acceptance of electric vehicles will inevitably increase.
Regarding the second-half trajectory, analysts at Gasgoo Research judge that the auto market for the whole year will present a rhythm of declining first and rising later, with the second half expected to achieve overall positive growth. Cui Dongshu also previously stated that the market will significantly improve after July, adding, "We are not pessimistic about the auto market in the second half; the market will get better and better." As the rainy season recedes, chip supply tensions marginally ease, and consumer confidence slowly recovers, the decline on the retail end is expected to gradually narrow in the third and fourth quarters.
However, the pressures facing the industry are equally impossible to ignore, with the most prominent being the continuous pressure on the profit end. CPCA data shows that from January to May 2026, the revenue of the auto industry was 4.2096 trillion yuan, a mere 1.4% year-on-year increase; costs were 3.7397 trillion yuan, up 2.3%; profits were 144 billion yuan, a substantial year-on-year drop of 20%; and the industry profit margin was only 3.4%, far below the 6.1% average level of downstream industrial enterprises. Rising prices of upstream raw materials are squeezing profit margins, while terminal price wars continue to consume profitability. The situation where automakers are under pressure from both ends is difficult to fundamentally reverse in the short term.
Against this backdrop, the underlying logic of industry competition will also be reconstructed accordingly. A market analyst at Gasgoo Research pointed out, "For all automakers, future competition is not single-dimensional, but a competition of systemic capabilities and ecosystems."
She stated that the market will eventually evolve into five typical forms of successful automakers: scale leaders, technological innovation pioneers, ecosystem brand service providers, niche track deep cultivators, and mobility integration providers. The era of relying solely on price wars or single-product advantages is over. Automakers must build comprehensive capabilities across multiple dimensions, including technological R&D, supply chain management, global layout, and user ecosystems, to gain a firm foothold in the new round of reshuffling.
Overall, the auto market in July has not witnessed a turnaround at the total volume level. Seasonal decline remains the main theme of the month, which is the result of the combined effects of cycles, policies, and external factors. However, beneath the surface of total volume pressure, the long-term logic of NEVs replacing ICE vehicles is still strengthening, the dominant position of the BEV technological route continues to consolidate, and the growth momentum of the export market remains robust. A true trend turnaround is accumulating momentum. In the second half of the auto market, a new equilibrium is expected to be gradually explored amidst divergence and reshuffling.