The landscape of the world’s largest auto market has shifted dramatically in the first two months of 2026. Legacy giants Volkswagen and Toyota have stormed back to the top in China, overtaking local EV champion BYD as government incentives for greener vehicles begin to fade.
According to data from the China Passenger Car Association (CPCA), Volkswagen’s joint ventures with FAW and SAIC captured a combined 13.9% share of the passenger vehicle market. They were closely followed by Geely with 13.8%, while Toyota’s partnerships with GAC and FAW secured a combined 7.8% share. This resurgence pushes BYD down to fourth place, holding 7.1% of the market.
This comeback for traditional automakers—who have been scrambling to catch up in the EV race—coincides directly with the expiration of purchase tax exemptions on electric cars and a scale-back of national subsidies for EV trade-ins. As the financial incentives that fueled the electric boom are curtailed, consumer preferences appear to be shifting.
CPCA Secretary-General Cui Dongshu noted that the diminishing subsidies are steering some buyers away from plug-in hybrids (PHEVs) and toward the hybrid electric vehicles (HEVs) that are a specialty of companies like Toyota. This trend has hit local Chinese manufacturers the hardest, particularly those whose business models rely heavily on budget-friendly electric and plug-in hybrid vehicles.
BYD, which famously dethroned VW as China’s top-selling carmaker in 2024 and held the title through last year, has seen its overall sales post their sharpest decline since the pandemic during this two-month period. In a bid to reignite momentum in its home market, the company—Tesla’s biggest global rival—unveiled its first major battery upgrade in six years last week. This move comes as China’s auto market pivots from a brutal price war toward a more value-driven competitive environment.
Meanwhile, Volkswagen is not resting on its laurels. The German automaker announced on Friday that it has begun mass production of its first model co-developed with Chinese partner Xpeng. It plans to launch over 20 new EV models in China this year alone, signaling its intent to fight for every segment of the market.
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