Ali Canberk Ozbugutu, Emirhan Yilmaz, and Emir Yildirim
17 July 2026•Update: 17 July 2026
Beijing reduced tax incentives for new electric vehicles (EVs) this year amid ongoing deflationary pressures in the Chinese economy, contributing to a sharp decline in the country’s EV market.
Some 2 million EVs were sold worldwide in June, rising 7% year-on-year and 11% month-on-month, according to London-based data analytics firm Benchmark Mineral Intelligence.
Global EV sales reached 9.6 million in the first half of the year, marking a 2% increase on an annual basis.
EV sales in China, the world’s largest EV market, declined 11% year-on-year in June to 1 million units, while sales in the first half of the year dropped 14% on an annual basis to 4.9 million units.
Rising production costs driven by Middle East tensions fueling higher oil prices have technically eased deflationary pressures, but economists do not view this as a sign of a healthier economic outlook because it reflects rising costs rather than stronger production or domestic demand.
Sadi Kaymaz, an Asian markets analyst, told Anadolu that the sales of fully electric and plug-in hybrid electric vehicles (PHEVs) fell by double digits last month due to reduced tax incentives and deflationary pressures.
“There’s been a general weak outlook since the beginning of the year and we’ve seen similar declines frequently, and this is all due to a combination of things, but most importantly government incentives,” he said. “For one thing, the vehicle purchase tax exemption, which was valid for 2024 and 2025, has been cut in half this year.”
Kaymaz stated that incentives decreased for trade-ins or swaps by smaller margins as well.
He said consumer demand shifted to the second half of the year because of these changes, while a strong base effect carried over from last year, casting a shadow on sales figures.
“Chinese people are reluctant to make large purchases like homes or cars,” he said. “Growth in retail spending began to hover just below or above zero, while the contraction in the real estate market is having a reverse wealth effect on car purchases.”
Kaymaz stated that factors like the erosion of job security amid the current macroeconomic environment and the artificial intelligence (AI) boom, as well as slowing real income growth, played a key role in overall weak consumer confidence and spending.
“People are constantly waiting for new discounts or more advanced models — they prefer to wait a little longer than buy a new car right away as technology changes rapidly and the price wars are underway, so the constant expectations of discounts cause people to postpone purchases,” he added.
Kaymaz noted that the sales of fully electric cars are continuing to grow but a 27.3% drop in PHEVs dragged down total sales.
“Sales of extended-range models also fell 31.9% and contributed to the decline, though this segment makes up only about 5% of the total market,” he said. “Domestic market conditions are challenging for manufacturers, triggering export efforts to intensify.”
Rico Luman, senior transport and logistics sector economist at ING Group, told Anadolu that there are three main reasons for the decline in China’s EV sales.
Luman said the sharp increase in EV sales last June created a very high comparison base for the current period, while reduced financial support cut the sales tax exemption in half.
“We have seen years of strong support and push for EVs, which encouraged many drivers to make the shift. And EV shares (including PHEV) are already around two thirds of the market. First movers have already shifted, and now further progress is getting more difficult amongst others because people in cities often haven’t got easy charging facilities around the corner,” he said.
Luman noted that electrification efforts will have to expand despite less support and high market saturation.
“The trend continues, but electrification needs to grow its share further with less support and more saturation. This takes more time, but if it goes too slow Beijing may turn up subsidies. Continued heavy price competition also helps to continue driving the EV-market forward,” he added.
