Leadership of the world’s largest car market has shifted once again. Across the first two months of 2026, Volkswagen climbed back to number one for sales in China, overtaking BYD once more. The brand that had unseated the Germans in 2024 and held the top spot throughout 2025 has now dropped to fourth place. In doing so, Volkswagen has reclaimed a position it occupied for three decades - from 1993 to 2023.
The year has only just begun, but these are the signals from January and February. Figures from the China Passenger Car Association (CPCA) point to a meaningful change in the market’s balance. And that balance has a clear driver: the winding down of incentives for buying electric vehicles.
The Chinese government has started to scale back some of the measures that, for years, boosted electric-vehicle sales in what is, in absolute terms, the biggest market in the world.
After several warning signs in 2025, Beijing appears intent on restoring a degree of balance to China’s automotive industry. The clearest message came last summer, when Xi Jinping, President of China, publicly criticised the country’s approach. He spoke about artificial intelligence and semiconductors, but the meaning was widely understood: the car sector needs to put an end to internal battles.
"The usual way of evaluating performance, looking only at how much GDP has grown or how many major projects have been launched, is no longer enough. We also have to ask: how much debt has been taken on?"
Xi Jinping, President of China
Amid these advances and reversals, two clear winners stand out for now: Volkswagen, back in first, and Toyota, currently in third. There is also a loser: BYD, down to fourth. But, as noted, this reflects only the first months of the year. There is still a long way to go, and the “Chinese giant” is not standing still.
Volkswagen strategy or a market response?
Volkswagen’s China joint ventures - with FAW and SAIC - achieved a combined 13.9% share of the passenger-vehicle market between January and February. With that outcome, the German group returns to the top of the table in a market where it has been losing ground in recent years to local manufacturers specialising in electric models.
Just behind sits Geely on 13.8%, while Toyota - via its partnerships with GAC and FAW - takes third place with a 7.8% share.
How much of this is the first tangible effect of Volkswagen’s plan, unveiled in 2025, to win back leadership in China? We will need more time to judge - although even a new combustion engine is on the way. For now, it looks more like a straightforward market reaction to the removal of certain incentives, which invariably distort both supply and demand.
BYD sinks down the ranking
The biggest surprise of these early months is BYD’s drop to fourth. The Chinese brand that, in 2024, surpassed Volkswagen to become China’s largest carmaker - and the world’s largest electric-car manufacturer - recorded a 7.1% share of the Chinese market across the first two months of the year, 30% lower than in 2025. It is the steepest sales decline for the company since the pandemic period.
According to Cui Dongshu, CPCA’s secretary-general, conventional hybrids - long a natural stronghold for Toyota, which has climbed into the top three - are attracting some of the buyers who previously chose plug-in hybrids or full electric vehicles.
At the same time, Chinese manufacturers that rely more heavily on low-cost electric models are among those hit hardest by the reduction in state support. It is worth recalling that the core of China’s market has been electric cars priced below €10,000.
Down, but not out
BYD has already responded to the sales fall. Last week, the company unveiled the first major update to its well-known Blade Battery, now moving into a second generation. Energy density is up by 5%, charging times have improved, and the firm is signalling lower costs.
In parallel, Volkswagen is stepping up its electric push in China. The German brand has recently begun series production of the first model developed jointly with XPeng, at the Hefei plant.
According to Volkswagen, more than 20 new electric models are expected to be launched in the Chinese market during this year.
A new phase in the world’s biggest market
The first-month data suggests China’s car market is entering a new chapter. After several years shaped by price wars - BYD vice-president Stella Li used the phrase “bloodbath” - alongside heavy state intervention to accelerate electrification, the industry now appears to be moving towards a steadier footing, where product positioning and industrial strategy may once again matter more than subsidies.
In that new balance, established brands look determined to regain ground. Mercedes-Benz already has a recovery plan under way, and Porsche seems to have little choice given its weak results over the past two years.
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