Sales of electric vehicles in China, the world’s largest market, contracted 13% year-on-year in the first six months of 2026 to 4.73 million units, according to the China Passenger Car Association. The decline, the first significant pullback after years of breakneck growth, immediately reshapes the global supply picture: Chinese manufacturers, facing weakening domestic demand and a mounting price war, are preparing to flood export markets with competitively priced models.

The slowdown in China stems from a deliberate policy shift. Beijing has begun phasing out purchase-tax breaks for battery-electric and plug-in hybrid vehicles, with the next reduction set for 1 January 2027. Consumers, anticipating further price cuts, are holding back. At the same time, the domestic market has become overcrowded—at least 143 brands competed last year, many from technology firms with no automotive heritage, such as smartphone maker Xiaomi and robot-vacuum producer Dreame. A government warning that the price war is unsustainable has done little to ease the pressure on margins, pushing producers to seek volume abroad.

In the United States, the policy environment is moving in the opposite direction. California, where the EV market share tumbled from nearly 25% to 15.7% after the federal $7,500 rebate expired, has launched a $3,500 point-of-sale discount for first-time buyers of new electric cars priced below $50,000, with a $1,750 rebate for used models. The $135.5 million programme, half funded by automakers, exempts California-based Rivian and Lucid from the price cap. Analysts in the state caution that the incentive may not fully close the cost gap with petrol vehicles, and its effect will depend on whether manufacturers stack it on top of existing discounts. A separate headwind comes from electricity costs: in deregulated retail-choice markets such as Texas, residential rates have risen sharply, eroding the running-cost advantage that EVs typically enjoy.

Chinese firms are also competing on technology, not just price. Xiaomi’s YU7 GT recently completed a fully autonomous lap of Germany’s Nürburgring Nordschleife in 10 minutes 29 seconds, a demonstration of advanced driver-assistance capability. Yet Ferrari’s global marketing chief, while acknowledging Chinese progress in straight-line performance, told Australian media that the challengers still lack the “driving emotion and handling precision” that define established performance brands. Ferrari’s own sales in China have more than halved since 2023, a sign that even luxury marques are not immune to the market’s upheaval.

The next factual milestones are the release of California’s programme details by the Air Resources Board in the coming weeks, and the scheduled reduction of China’s purchase-tax relief on 1 January 2027. Together, they will test whether state-level incentives can counter a global supply surge and shifting consumer sentiment.