China's Auto Market Nears Bottom with Recovery Expected in Late Summer

China's automobile market continues to experience weak demand after several consecutive months of declining sales, yet early indicators are painting a more optimistic picture for the second half of the year. Analysts expect tangible improvement to emerge during August and September as the market approaches the bottom of the current downturn cycle.

Sharp Sales Decline Since the Start of the Year

According to Morgan Stanley analysts, Chinese automakers may be on the verge of hitting the trough of the current downturn, although overall market performance will remain weak in the near term, particularly during July, which is typically a seasonally quiet month. The Chinese market has faced strong pressure since the beginning of 2026, with passenger car sales in May dropping 22.3% year-on-year to around 1.53 million vehicles, marking the eighth consecutive month of decline. Sales during the first five months of the year also fell by approximately 19.7% to 7.18 million vehicles, prompting the China Passenger Car Association to lower its full-year forecast, now expecting sales to decline by about 11% instead of the previously estimated modest drop.

Second Quarter Shows Relative Improvement

Despite the weak overall numbers, Morgan Stanley estimates indicate that wholesale passenger car sales in the second quarter could range between 6.7 and 6.9 million vehicles, representing a year-on-year decline of 3% to 5%. This marks an improvement compared to a contraction of around 8% in the first quarter, supporting the view that the market is gradually approaching the end of the worst phase of the downturn. June sales are also expected to be better than initial indicators suggest, supported by mid-year promotional campaigns, government support programs, license plate issuance incentives in some cities, and lower fuel prices.

Multiple Factors Supporting the Expected Recovery

Analysts expect seasonal weakness to continue through July before the market opens a clearer window of recovery in August and September. This scenario is linked to several converging factors, including a new wave of model launches, the activation of additional government support policies, and improved seasonal demand as the final quarter approaches, which typically sees higher car-buying activity. Automakers are likely to begin building up inventory in preparation for this period, which could positively impact monthly sales figures.

Brand Performance in the Chinese Market

The Chinese market is witnessing intense competition among local and global brands, with BYD, Geely, Chery, and other major players continuing their efforts to attract consumers by offering competitive electric and hybrid models at attractive prices. As overall demand weakens, these strategies become increasingly important for maintaining market share. The coming period is expected to see more marketing moves and incentives to stimulate buyers, especially with the traditional peak season approaching at the end of the year.