Investing.com -- Volkswagen is preparing for intensified competition in China as the world's largest car market faces potential contraction for the first time since 2018, according to the head of the German automaker's operations in the region.

Ralf Brandstaetter, Volkswagen Group China CEO, told the FAZ newspaper on Wednesday that a market decline cannot be ruled out. The China Passenger Car Association expects the country's passenger car market to remain flat in 2026 following 24 million sales in 2025.

Brandstaetter described this projection as a best-case scenario. Volkswagen has revised its long-term outlook, now expecting annual sales of 26 million cars in China by 2030, down from a previous forecast of 28 million.

The German automaker is working to maintain its position as China's top-selling foreign manufacturer by launching dozens of new electric and hybrid models in partnership with local companies. Domestic brands have displaced Volkswagen's decades-long market leadership, though the company regained the top spot in the first quarter after Chinese government EV subsidies ended, affecting competitors including BYD.

Brandstaetter acknowledged that market conditions have changed permanently. "We certainly won't be returning to the super-profits of years past," he said. "Those days are over. Competition in China is now far too fierce for that."