BEIJING — Chinese electric car giant BYD reported a nearly two-year low in local sales in January, signaling mounting challenges for the world’s largest auto market.

The slump comes amid rising concerns about lackluster domestic demand in China, and overproduction of cars spilling into other countries.

At least six major electric car brands from Xiaomi to Xpeng reported a sharp sales drop in January from December, according to CNBC’s analysis. Some companies only report deliveries rather than sales, and don’t break down overseas figures.

“We see increasing pressure on China’s auto market in 2026, driven by a combination of policy and competitive factors,” said Helen Liu, partner at Bain & Company. She said policy changes could prompt consumers to delay their car purchases, while automakers become more cautious about new vehicle launches.

China’s economic and business figures for the first two months of the year tend to be volatile as the Lunar New Year holiday, which follows an agrarian calendar, falls on different dates each year.

But this past January also saw a major reduction in government support for electric cars. Starting Jan. 1, China has reinstated a 5% purchase tax, after exempting new energy vehicles from the full 10% vehicle purchase tax for over a decade. New energy vehicles include battery and hybrid-powered cars.

“We know [EV sales will] slow, we just don’t know by how much,” said Tu Le, founder and managing director at consulting firm Sino Auto Insights. “We’ll know much better after the first quarter is over.”

The automaker also faces rising competition from local rivals, amid a price war that’s pushed automakers to offer more features at lower prices.

Aito, whose cars use smartphone and telecom giant Huawei’s operating system, reported more than 40,000 vehicle deliveries in January, up more than 80% from a year ago.

Leapmotor and Nio also saw year-on-year deliveries rise, to 32,059 and 27,182, respectively.

Smartphone company Xiaomi posted a year-on-year increase to over 39,000 deliveries of its electric cars in January, ahead of a planned upgrade to its SU7 sedan in April. But that was down from over 50,000 deliveries in December.

“BYD has had a stellar run at the top and it’s impressive how long they’ve been able to hold off their domestic competitors,” Le said, noting it’s not just one but several automakers vying for the same market.

“Companies like Geely with its Xingyuan [Galaxy EV] have really taken sales on the low end, where BYD’s bread is buttered,” he added.

Geely has climbed into second place in China’s electric car market behind BYD. In January, Geely sold more than 270,000 cars, including its electric car brands Galaxy and Zeekr, along with exported vehicles — more than 60,000 last month.

The company expects its overall new energy vehicle sales will grow to 2.22 million cars in 2026, up by 32% on year.

BYD, which sold 4.56 million new energy cars last year, has yet to release a full-year domestic sales target. Instead, the company only told reporters late last month it plans to boost its overseas sales by nearly 25% this year to 1.3 million cars.

The automaker’s exports also tapered off in January to 100,482 vehicles, down from 133,172 cars in December.

Despite recent headwinds, Le expects BYD to retain its dominance in both the domestic and international markets, citing planned upgrades to the company’s charging, energy storage, and intelligent driving infrastructure.

Xpeng reported just 20,011 car deliveries in January, after a year that saw an average of more than 35,000 cars a month. Li Auto deliveries also fell, to 27,668 cars, last month.

The slowdown in sales is industry-wide. New energy vehicle sales, which includes hybrid and battery-powered cars, eked out a 2.6% year-on-year increase in December, in a third-straight month of slowing growth, according to China Passenger Car Association data.

It’s a troubling sign for an electric car industry that’s been a bright spot in an economy struggling to overcome a years-long decline in real estate, once a driver of about a quarter of gross domestic product.

The autos sector contributes to about 30 million jobs in China, or more than one-tenth of urban employment, the head of a China machinery body reportedly said in November.

However, Fitch Ratings Economist Alex Muscatelli said that the economic share of the autos sector is still relatively small compared to real estate. He said that in fixed asset investment, which signals future growth, autos only accounted for 3.7% of the total last year, while real estate made up 23%.

China’s top leaders are expected to release policy targets for the year at an annual parliamentary meeting in March.