S&P Global Ratings sees light vehicle demand declining this year, with China and the US observing the largest drops, according to a recent release.

Waning consumer interest and reduced policy incentives will drive the decline in demand, S&P said.

Chinese light vehicle sales dropped 20% year on year in the first four months of 2026, although S&P expects a modest recovery in the second half due to better seasonality and availability of new models, the rating agency said.

Meanwhile, domestic wholesale volume for Chinese mass-market producers like BYD (HKG:1211, SHE:002594) and Chery Automobile dropped between 40% and 50%, the rating agency said.

S&P expects rated manufacturers to leverage scale advantages to sustain stable sales volumes.

However, rising cost inflation amid higher commodity prices due to the Middle East war could squeeze profit margins across the sector, S&P said.

Chinese carmakers have quickened the pace of overseas expansion to offset intense domestic competition, leading to a 50% jump in passenger vehicle exports during the first quarter, the rating agency said.

Chinese producers will also continue to increase prices or scale back incentives on some models amid these pressures, according to the rating agency.