GUANGZHOU — Toyota sold 102,300 vehicles in China in May, down 31.7% from a year earlier, a fourth consecutive monthly decline and an acceleration from April’s 25.4% drop. Honda fared worse: 28,300 units, down 48.7% — its 28th consecutive month of falling sales, according to figures the companies released this week. Nissan, the third member of the Japanese group, is also declining, industry data show.
The numbers amount to a slow-motion retreat from the world’s largest auto market. Toyota’s cumulative sales for the first five months of the year totaled 579,400 units, down 14.8% year over year. Honda’s May figure was less than half its volume of two years ago. Japanese brands, which once competed neck and neck with Volkswagen for the title of China’s best-selling foreign automaker, are being squeezed from both sides: German luxury holds the premium end, and Chinese electric-vehicle makers control the growth.
The cause is structural rather than cyclical. China’s market is electrifying faster than any other, and domestic brands — BYD above all, joined by Li Auto, AITO and a crowded field of challengers — offer competitive models at price points Japanese manufacturers struggle to match. Plug-in hybrids, in particular, have reshaped the segment Japanese hybrids once owned: BYD’s models pair a gasoline engine with a large battery and a price tag that undercuts comparable Toyota and Honda hybrids by wide margins. Rising fuel prices have compounded the pressure on gasoline models.
Toyota’s response shows the scale of the problem. Electrified models accounted for roughly 70% of its May sales, and fully electric vehicles more than doubled year over year to 13,700 units, with the new bZ7 sedan, developed specifically for the Chinese market, contributing meaningfully. The mix shift is real, but the base is shrinking: even a doubled EV line is a small fraction of the volume BYD sells in a month, and the overall decline continues.
The Japanese automakers have responded with restructuring. Honda has said it will cut its production capacity in China by about a third, and Nissan has idled output at its Changzhou plant. Toyota, which had paused production at some joint-venture plants amid the price war, has focused on introducing China-specific models rather than defending older ones. The joint ventures themselves — FAW Toyota, GAC Toyota, Dongfeng Honda and GAC Honda — remain the channels through which any recovery would have to run, but their dealer networks are thinning as volumes fall.
The price war that erupted in 2023 has made the arithmetic worse. Chinese manufacturers, BYD foremost, have cut prices repeatedly, forcing competitors to discount or cede share. Japanese brands have resisted the deepest cuts to protect margins, a choice that has cost them volume; analysts said the strategy reflects a judgment that chasing sales with losses only accelerates the decline.
The strategic options are narrowing. Exporting China-built cars to other markets is one avenue, and Toyota has used its Chinese factories to supply some emerging markets. Deepening local partnerships is another: Japanese makers have signed battery and platform deals with Chinese suppliers to speed electrification, though none has matched the scale of the joint ventures General Motors and Volkswagen have struck with local players. A third option — betting on hybrids as the bridge technology — is being tested by the market itself, as plug-in hybrids overtake traditional hybrids in Chinese showrooms.
The human dimension shows up in the numbers too. Honda’s 28 consecutive months of decline mean the company has been shrinking in China for more than two years straight, a stretch that has cost dealerships, suppliers and thousands of jobs. For Toyota, the erosion is slower but steady: each quarter resets the base lower, and the company’s China business, once a reliable profit engine, has become a drag that other regions must offset.
The Japanese decline is part of a broader foreign retreat. Volkswagen, the other traditional leader in China, has also lost ground to domestic brands, and General Motors has restructured its Chinese operations. The difference is speed: Japanese makers entered the electric era with strong hybrid credibility and a reputation for reliability, advantages that have eroded as plug-in hybrids and battery electrics from local brands closed the technology gap. Trade friction has added to the pressure. China’s tariff increases on imported vehicles in 2025 raised costs for foreign brands shipping cars in, while domestic producers face no such headwind. For the joint ventures, the strategy has shifted from gaining share to protecting what remains: cutting costs, trimming dealer networks and concentrating launches on the models most likely to sell.
Analysts said the near-term path is unlikely to reverse quickly. Chinese consumers who have moved to domestic EVs rarely return to gasoline or traditional hybrids, and the brand loyalty that Japanese automakers spent two decades building has been spent down. The window for a turnaround runs through new electric models, faster local decision-making and price points set by competitors rather than headquarters.
For now, the May numbers offer the clearest reading of the trend: Toyota down a third, Honda down by half, and the market’s growth going to brands that do not appear in the Japanese manufacturers’ sales reports at all. The companies’ own forecasts acknowledge the direction. The question is no longer whether the decline will continue, but where it stops.
