According to an analysis, the broader national economy has had a positive start to 2026, with proactive macro policies and measures to boost domestic demand and optimize supply leading to overall stable and rising market demand.
In the first half of the year, total retail sales of consumer goods reached 24.8722 trillion yuan, a year-on-year increase of 1.3%. Within this, automobile consumption amounted to 1.9688 trillion yuan, representing a decrease of 13%. Retail sales of consumer goods excluding automobiles reached 22.9034 trillion yuan, growing by 2.8%.
In June alone, total retail sales of consumer goods were 4.2691 trillion yuan, up 1.0% year-on-year. Automobile consumption for the month was 379.1 billion yuan, down 16%, while retail sales excluding automobiles were 3.89 trillion yuan, rising 3.0%.
The value added of industrial enterprises above a designated size increased by 5.3% year-on-year in June. For the January to June period, the growth was 5.4%. The automotive industry's value added rose by 7% in the first half, with an 8.7% increase in June, indicating strong production performance.
From January to June, total automobile production reached 15.1 million units, down 4% year-on-year. New energy vehicle (NEV) production was 7.4 million units, up 6%, achieving a penetration rate of 49%. Production of internal combustion engine vehicles was 7.7 million units, a decrease of 12%.
In June, automobile production was 2.82 million units, essentially flat year-on-year. NEV production surged 29% to 1.62 million units, reaching a 58% penetration rate, while internal combustion engine vehicle production fell 24% to 1.2 million units.
In the first half of the year, fixed-asset investment in the automobile industry declined by 4.2%, which was still better than the 5.7% average decline across all industries. The primary pressure on investment currently lies in the tertiary sector, particularly in public infrastructure, education, culture, and healthcare, where investment has fallen sharply.
The current environment is complex, with geopolitical tensions and high oil prices impacting supply chains and consumer demand. Domestically, the foundation for economic recovery is not yet solid, with challenges including high living costs and insufficient effective demand, making the task of stabilizing growth in the sector still arduous.
Notably, the subsidy policy for replacing old vehicles with new ones in 2026 has been significantly more effective for commercial vehicles than for passenger vehicles. This has led to robust retail growth for new energy commercial vehicles, while new energy passenger vehicle sales have plummeted. The pressure on passenger car consumption remains substantial.
There is a call for sustained and powerful follow-up policies to stimulate the market. Suggested measures include tax relief for car buyers, promoting NEVs in rural areas, establishing standards for economical electric vehicles, optimizing licensing for such vehicles, offering greater purchase tax incentives for compliant EVs with shorter ranges, and encouraging car purchases linked to marriage and childbirth to boost consumption and economic growth.
Key Observations on the Automotive Sector
1. Steady Downtrend in Auto Consumption
Since the downturn in the property market began in 2021, automobile consumption has risen from 3.94 trillion yuan in 2020 to 5.03 trillion yuan in 2024, breaking free from a three-year plateau around 3.9 trillion yuan from 2018 to 2020. The decline in real estate has somewhat alleviated the issue of investment in property crowding out consumption, leading to a slight improvement in overall consumption weakness.
In the first half of 2026, auto consumption fell 12.6% year-on-year, with a 16.1% drop in June. The decline this year is more pronounced following a period of high base figures. The impact of high oil prices on consumption has shown some signs of easing.
2. Modest Start to 2026 Vehicle Production
In June, 314 out of 626 major industrial products saw year-on-year production growth. Automobile production was 2.824 million units, down 0.2%, within which NEV production was 1.624 million units, surging 29.4%. Power generation reached 827.6 billion kWh, up 2.0%.
3. Solid Performance in Automotive Value Added
The automotive industry's value added has shown strong growth in recent years: 6.6% in 2020, around 5.5% in 2021, 6.3% in 2022, a very strong 13% in 2023, a relatively good 9.1% in 2024, and 11.5% in 2025. For the first half of 2026, it grew by 7%, with June seeing an 8.7% increase, demonstrating robust production activity.
4. Relatively Stable Capacity Utilization
The capacity utilization rate for the automotive industry fluctuated within a narrow range of 72.4% to 74.6% from 2020 to 2024. It stood at 73.2% in 2025, a relatively low level. In Q1 2026, the rate was 70.3%, down 1.6 percentage points year-on-year, and it improved slightly to 70.8% in Q2, still down 0.5 percentage points year-on-year.
5. Detailed Production Breakdown
Daily average NEV production in June was 54,000 units, up 29.4% year-on-year. Production has been volatile this year due to a high base from the previous year. The first half of 2025 saw strong production and demand for small and micro EVs, though sales value grew slightly slower than volume. This year, the sharp reduction in subsidies for small/micro vehicles has had a significant impact, while high subsidies for commercial vehicles have fueled a market boom.
Daily average automobile production in June was 94,000 units, down 0.2%. Considering the high base from Jan-Jun 2025 and the contraction of policy subsidies in 2026, growth performance in the first half of this year has been weak.
Historical production data shows a clear trend: NEV production and penetration have risen steadily, while internal combustion engine vehicle production has generally declined. In 2022, NEV penetration was 26%; it rose to 31% in 2023, 42% in 2024, 48% in 2025, and reached 49% in H1 2026, hitting 58% in June 2026.
6. Slight Pullback in Automotive Investment
National fixed-asset investment (excluding rural households) fell 5.7% year-on-year in the first half. Investment in the automobile industry declined by 4.2%, performing better than the overall average.
7. Slight Improvement in Property Market Crowding-Out Effect
In the first half, sales area of newly built commercial housing fell 11.6% year-on-year, with residential sales down 12.4%. Sales value of newly built commercial housing dropped 13.6%, with residential sales down 13.7%. Land sale revenues have historically constituted a large portion of real estate sales and local government finance.
The current ratio of property sales area to vehicle sales volume is 27 square meters per vehicle, an improvement from the peak of 70 square meters per vehicle in 2020. However, lingering debt pressures and high property prices continue to squeeze consumption, dampening demand in the auto market. The recent easing of household property debt pressure and weaker home-buying demand may offer some potential benefit to auto consumption.
8. Need for Sustained Policy Support for Auto Market
Since the property market downturn began, auto consumption has grown from 3.94 trillion yuan in 2020 to 4.98 trillion yuan in 2025, moving past its previous stagnation. The decline in real estate has helped improve the issue of property investment crowding out consumption.
In 2025, total retail sales grew 3.7%, but auto consumption fell 2%. Rapidly rising living costs, particularly for food and clothing, are severely squeezing out expenditure on car purchases.
Auto market consumption fell 13% in H1 2026, indicating the issue of weak consumption persists and requires further improvement.
The first half of 2026 presented a complex picture for the auto sector characterized by policy continuity, market divergence, and pressured demand. While the vehicle replacement policy continues to have an effect, retail volumes are still declining due to factors like the accelerated contraction of the internal combustion engine vehicle market, price wars diluting consumer confidence, and weakness in the low-end market. The steady growth in petroleum product consumption reflects the rigidity of travel demand, suggesting that the softness in auto consumption points more to a marginal weakening in willingness to spend on durable goods and disposable income.
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