by ZHOU Shuqi

China's gasoline vehicle sales are rising again, defying expectations that the world's largest auto market would quickly turn electric. Sales reached 1 million units in September, the fourth straight month of year-on-year growth, according to the China Association of Automobile Manufacturers (CAAM).

From January to September, fuel-car sales totaled 8 million, up 1.7% from a year earlier after an 18% slump in 2024.

The recovery highlights how deep discounts and government incentives are supporting demand for conventional models even as automakers expand electric production. Fitch Ratings expects growth in new-energy vehicle (NEV) sales to slow in 2026, with market penetration rising only modestly to about 55%, as subsidies fade and competition intensifies.

YANG Jing, director at Fitch Ratings Asia-Pacific Corporate Research, said plug-in hybrids are replacing entry-level demand and pushing gasoline models upmarket. She said the trend is concentrating market share among leading brands and forcing weaker players out.

Discounts and subsidies

The rebound has been driven by price cuts and policy support. The China Passenger Car Association (CPCA) said traditional car discounts averaged 23.9% in September, more than double those for NEVs, and have stayed above 22% for 10 consecutive months.

Compact sedans such as Nissan's Sylphy now sell for about 60,000 to 70,000 yuan (US$8,421–$9,825) after dealer incentives. Mid-range and premium brands have also reduced prices by tens of thousands of yuan, and luxury marques have trimmed more than 100,000 yuan from sticker prices.

China's vehicle trade-in subsidy program, a government-backed initiative offering cash incentives for scrapping older cars, has also lifted demand. The program now covers vehicles meeting China IV emission standards, roughly equivalent to Europe's Euro IV. Owners scrapping cars with 2.0-liter or smaller engines can receive up to 15,000 yuan, while those trading in for new cars get as much as 13,000 yuan.

LI Yanwei, an expert at the China Automobile Dealers Association (CADA), said cities such as Chengdu, where local governments provide stronger fuel-car subsidies, have seen the most visible increases in sales.

Joint-venture automakers including Dongfeng Nissan, Beijing Hyundai and GAC Toyota have adopted fixed "one-price" policies, replacing haggling with transparent pricing across dealerships. Dealers said the approach has eased competition and helped attract more buyers.

Smarter combustion cars

Automakers are upgrading gasoline models with digital features to retain customers. SAIC Volkswagen's new Passat, Tiguan L and Teramont Pro models now include advanced highway driving assistance, while Dongfeng Nissan's Teana is the first gasoline car to feature Huawei's smart cockpit system.

A senior executive at a joint-venture automaker said intelligent upgrades for combustion vehicles are technically more challenging because they require tighter integration of engines, transmissions, braking and sensor systems.

Yang from Fitch said such upgrades could extend the life cycle of traditional models. Some consumers remain cautious about battery safety and charging convenience, she said, adding that smarter fuel cars could encourage replacement purchases.

Outlook for 2026

China will halve purchase taxes on NEVs next year, narrowing cost differences with gasoline cars. Yang said consumers are likely to compare total ownership costs more carefully, and fuel cars could regain a value-for-money edge if the price gap continues to shrink.

Fitch said the auto sector this year is showing a "higher volume, lower margin" pattern: incentives have boosted retail demand but eroded prices. With many regional subsidies expiring in the fourth quarter, Fitch expects sales to be flat or slightly weaker from a year earlier, with full-year retail growth of 6% to 7%.

As part of a nationwide campaign to curb cut-throat competition, authorities have urged automakers to avoid destructive price wars and strengthen supply-chain discipline. Measures include standardized pricing, shorter supplier payment terms, and limits on excessive marketing.

Yang cautioned that enforcement may prove difficult since most automakers already operate with negative working capital, meaning tighter payment terms could further strain cash flow. Proposed revisions to China's Price Law are expected to play a key role in regulating below-cost pricing and promoting a more orderly market, she added.