The world is applauding the latest Chinese vehicles and sales are surging almost everywhere the cars are available. The one exception: China itself.

New-car sales in China, the world’s largest new-vehicle market, fell 22% in May compared with the same month a year earlier to around 1.5 million vehicles. That was the eighth straight month of year-over-year declines, according to the China Passenger Car Association. Year-to-date car sales are running nearly 20% below last year, hitting profits at the country’s leading carmakers.

The troubles at home are pushing Chinese carmakers—including foreign brands that manufacture there—into an even more aggressive expansion overseas. The Chinese auto industry shipped 784,000 cars abroad in May, according to the association, 75% more than in the same month last year.

In January, Beijing halved a tax exemption for plug-in vehicles and reduced subsidies when people trade in an old vehicle for an electric vehicle, hitting EV sales. Then, in March, the Iran war led to rising gasoline prices, hurting sales of traditionally powered cars as well.

Many consumers were already hesitant about big-ticket purchases in an economy hit by deflation and high youth unemployment. Retail sales in China grew just 0.2% in April, the slowest in more than three years.

“We need to do something to really rebuild consumer confidence,” said Stella Li, executive vice president at BYD, China’s largest carmaker.

For the first quarter, many Chinese automakers reported their worst results in years. BYD’s net profit roughly halved to the equivalent of $590 million, its lowest since mid-2022. Smaller players, such as EV maker XPeng, are suffering losses in a market crowded with dozens of competitors and hundreds of models.

BYD has sought to revive business with technology announcements such as five-minute flash charging, long battery warranties and pledges to cover the cost of any accidents caused by its “God’s Eye” driver-assistance system.

The focus on innovation marks a change from the price cuts that drove BYD’s spectacular growth in earlier years. The Chinese government last year clamped down on what it saw as excessive competition in the EV industry, fearful that a vicious price war was hurting suppliers and contributing to the deflationary mood.

With its unusual automated-driving promise, BYD wants to “put money on the table, give consumers confidence,” said Li. “I’m more focused on quality than quantity.”

As the local market struggles, Chinese carmakers are accelerating their export push. BYD founder Wang Chuanfu said at the company’s annual general meeting Tuesday that it planned to be the world’s largest automaker within five years, according to a summary of the meeting.

Among the few countries not experiencing an influx of Chinese cars is the U.S., which has introduced high tariffs and other restrictions to keep them out.

On Monday, the Pentagon added BYD and NIO, another Chinese carmaker, to a list of companies deemed to have links with China’s military, a move that bars them from carrying out work for the Defense Department. The companies said they didn’t have military links and were wrongly included on the list.

Elsewhere, the rapid growth of Chinese vehicle exports has raised alarm bells and prompted moves to restrict trade. China’s carmakers have responded by building factories and joint ventures, particularly in Europe.

“The key is to find a way to really partner and join forces,” said Brian Gu, XPeng’s vice chairman. “Ultimately, we need to invest more.”