Volkswagen has reclaimed the top spot in China's passenger vehicle market, with Toyota also surging back into contention — both overtaking domestic EV champion BYD in the first two months of 2026 as government subsidies for greener cars continued to fade.
According to data from the China Passenger Car Association, Volkswagen's Chinese joint ventures with FAW and SAIC held a combined 13.9% market share in sales terms. Geely followed closely at 13.8%, while Toyota's joint ventures with GAC and FAW captured 7.8%.
The legacy automakers' resurgence is largely a story of policy. The shift in market dynamics comes as purchase tax exemptions on electric cars expire and Beijing reduces subsidies for trading in EVs. As those incentives dried up, Toyota's hybrid lineup proved particularly well-positioned. According to Cui Dongshu, Secretary-General of the CPCA, hybrid EVs steered a meaningful portion of consumers away from plug-in hybrids — a segment where rivals had been more dependent on subsidy-driven demand. Automakers that had built their strategies around budget PHEVs and budget EVs felt the sharpest pain from the policy shift.
BYD's sales from January to February came in at around 198,000 units, down 35% year-on-year, and the company has begun offering significant price discounts on major models to ease inventory pressure. The EV giant, which unseated Volkswagen as China's largest carmaker by sales in 2024 and held onto the crown throughout 2025, dropped to fourth place with just 7.1% market share — its steepest overall sales decline since the pandemic.
BYD isn't standing still, however. Last week, the company — Tesla's most formidable global competitor — unveiled its first major battery upgrade in six years, a bid to revive momentum in a home market that is increasingly shifting away from price wars toward a value-driven buying culture. A key talking point around BYD's resilience has come from an unlikely corner: Michael Burry, the investor famed for predicting the U.S. housing crash, recently called BYD one of the world's most technologically advanced automakers, citing its vertically integrated model — the company manufactures its own chips, batteries, motors, and other core components.
Meanwhile, Volkswagen is pressing its advantage hard. The German automaker has begun mass production of its first model co-developed with Chinese partner Xpeng, and is set to launch more than 20 new EV models in China this year alone.
Industry analysts suggest the Chinese auto market has moved away from "EV universalism" and entered a transitional period where internal combustion engines, hybrids, and electric vehicles coexist. Whether BYD can leverage its next-generation battery technology and overseas expansion to reclaim its lead remains the central question hanging over the world's largest auto market.