The bank predicts flat sales at best - and a 5 per cent decline at worst - because incentives have merely brought demand forward Car sales in mainland China are likely to slide in 2026, breaking a six-year streak, if Beijing stops granting cash subsidies and tax incentives to buyers, according to a JPMorgan forecast that looms over the earnings outlook for the country's 100-odd vehicle assemblers.
"We expect retail [car] sales to see flat growth next year in a bullish scenario," Nick Lai, head of auto research in Asia-Pacific at JPMorgan, said in an interview. "The market has more than a 50 per cent chance of seeing year-on-year slippage as meaningful demand may have been brought forward."
Mainland car sales could slump by 3 to 5 per cent next year in a more cautious scenario, he added.
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The forecast encompasses both electric vehicles (EVs) and petrol cars. The EV segment - a bright spot in China's economy amid surging adoption by local motorists - was expected to grow 15 per cent next year, down from a projected 27 per cent this year, Lai said.
China's automotive sector last contracted in 2020, when carmakers handed a total of 19.5 million units to customers, down 6.2 per cent from 2019, data from the China Passenger Car Association showed.
Expiring subsidies and tax incentives are to blame for the pessimistic outlook.
"A lesson from history is that government subsidies have rarely created new demand - they just brought forward future demand," Lai said. "In the meantime, demand in the following year is contingent upon the underlying economy and consumer confidence if subsidies expire."
In a recent research report, the US bank said Beijing's existing subsidies to bolster car sales could bring forward around 1 to 2 million units of future demand.
Until the end of the year, Chinese buyers looking to replace existing cars with EVs are eligible for a trade-in subsidy of 20,000 yuan (US$2,811), while those buying petrol-powered cars are entitled to a 15,000 yuan rebate.
The central government is poised to make an announcement on whether the trade-in subsidy will be renewed in January.
In addition, EV buyers are currently exempt from a 10 per cent purchase tax. But such purchases will incur a 5 per cent tax from January until the regular 10 per cent tax rate returns in 2028.
JPMorgan forecast that overall car sales across the mainland in 2025 would climb 6 per cent from last year to 24.46 million units.
EVs, comprising pure-electric cars and plug-in hybrids, accounted for 57.8 per cent of total vehicle sales in China in September.
China's automotive sector has been mired in overcapacity woes over the past few years as major players offered aggressive discounts to lure buyers, squeezing their profit margins.
The average discount offered to mainland Chinese buyers hit a record 17.4 per cent in June, according to JPMorgan's data covering 40 foreign and Chinese car brands across 1,000 variants.
It fell to 16.7 per cent in July, but then stayed nearly unchanged afterwards, the bank said in the report.
China's output of vehicles, which includes buses and lorries as well as passenger cars, may hit 33 million units in 2025, compared with an estimated capacity of around 50 million units, Lai said.
The average net per-vehicle -margin - the gap between the -selling price and production costs such as raw materials, labour and logistics - stood at about 5,000 yuan now among Chinese carmakers, according to Lai.
But he added that the margin could jump fourfold to 20,000 yuan if they were to export more vehicles to overseas markets where they could command higher prices.
Chinese EV king BYD said exports this year would make up about 20 per cent of its global sales, spurred by improved logistics and new model launches, according to Li Yunfei, the firm's general manager of branding and public relations.
Its sales outside the -mainland last year accounted for less than 10 per cent of its total.
Major assemblers are also revving up their go-global pace by building China's EV supply chain abroad to support local manufacturing.
The shift towards overseas EV production was particularly strong in Southeast Asia, where localisation rates were expected to exceed 50 per cent by 2026, said Rosalie Chen, a senior analyst at Third Bridge, in a research note on Monday.
"As a result, costs for BYD and other Chinese carmakers could fall by around 10 per cent, improving profit margins by roughly 15 percentage points," she said.
Localisation rates in Southeast Asia were at 30 to 40 per cent at present, she added.
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