Volkswagen (VW) reclaimed sales leadership in China, the world’s largest car market, during the first two months of 2026. Toyota also regained ground, with both overtaking local electric vehicle champion BYD amid fading subsidies for greener cars, according to Reuters.

VW’s Chinese joint ventures with FAW and SAIC held a combined 13.9 per cent share of the passenger vehicle market, followed by Geely at 13.8 per cent and Toyota’s partnerships with GAC and FAW at 7.8 per cent, data from the China Passenger Car Association (CPCA) revealed.

The comeback of these legacy automakers, who have struggled to keep pace with local rivals in electric vehicles, coincides with the expiry of purchase tax exemptions on EVs and Beijing’s decision to scale back subsidies for trading in such cars.

As incentives fade, Toyota’s strength in hybrid EVs has steered some consumers away from plug-in hybrids, explained Cui Dongshu, secretary-general of the CPCA. Local automakers relying on budget EVs and plug-in hybrids have taken the hardest hit from the reduced support.

BYD, which overtook VW as China’s biggest carmaker by sales in 2024 and retained the crown last year, slipped to fourth place with a 7.1 per cent market share in January and February. Its overall sales recorded the sharpest decline since the pandemic.

The company, Tesla’s biggest competitor, unveiled its first major battery upgrade in six years last week in an effort to revive sales in a market shifting towards value-driven strategies and away from bruising price wars.

VW, meanwhile, has begun mass production of its first model co-developed with Chinese partner Xpeng. The German automaker announced plans to launch more than 20 new EV models in China this year alone.