Investing.com -- Volkswagen reclaimed the top position in China's passenger vehicle market during the first two months of 2026, overtaking local electric vehicle maker BYD as government subsidies for greener cars diminished, according to data from the China Passenger Car Association.

Volkswagen's Chinese joint ventures with FAW and SAIC held a combined 13.9% share of the country's passenger vehicle market in sales terms during January and February. Geely followed closely with 13.8%, while Toyota's joint ventures with GAC and FAW captured 7.8% of the market.

BYD, which had unseated Volkswagen as China's largest carmaker by sales in 2024 and maintained that position last year, dropped to fourth place with a 7.1% market share in the January-February period. The company experienced its largest sales decline since the pandemic.

The shift in market dynamics comes as purchase tax exemptions on electric cars expire and Beijing reduces subsidies for trading in EVs. The legacy automakers' recovery in the world's largest auto market marks a reversal after struggling to compete with local rivals in the electric vehicle segment.

Cui Dongshu, secretary-general at CPCA, said hybrid EVs that Toyota specializes in steered some consumers away from PHEVs as subsidies fade.

Local automakers focusing on budget electric and plug-in hybrid vehicles faced the largest impacts from the reduced incentives.