Dozens of Chinese electric vehicle (EV) makers face a do-or-die moment in 2026, according to analysts, amid weakening domestic demand that is expected to see perennial loss-making firms exit the world’s largest car market. About 50 unprofitable Chinese EV makers are under pressure to scale down their business or wind down operations, as the country’s automotive sector is projected to report a sales drop next year – the first such contraction since 2020 – owing to the industry’s overcapacity woes and softening government support. “Time is against those players whose cars cannot impress young drivers,” said Qian Kang, who owns a factory that makes automotive printed circuit boards in Zhejiang province. “Performance in 2026 will be crucial for most of the unprofitable EV assemblers.” Grappling with expiring cash subsidies and tax incentives, the domestic car market is forecast to see deliveries slump even if assemblers offer steep discounts to lure buyers, according to the consensus forecast among auto analysts.
Beijing announced the continuation of the trade-in subsidy this year, but changed the format from a fixed amount to a percentage of the purchase price, which means that buyers of lower-priced cars would receive a lower subsidy. EV buyers are currently exempt from a 10% purchase tax. These purchases will incur a 5% tax from January until the regular 10% tax rate returns in 2028. Deutsche Bank predicted that total vehicle deliveries in the country would plunge 5% in 2026. In October, JPMorgan forecast total China car sales – both petrol-based and EVs – could drop between 3% and 5% in 2026. Those projections underscored how excess capacity had led to several rounds of brutal discount wars over the past three years, which affected local carmakers’ profitability. All Chinese EV makers had also invested billions of dollars in research and development (R&D) in a race to gain a technological edge over their rivals in the market, which depressed their earnings outlook. Only a handful of Chinese EV makers – including BYD, the world’s largest builder of electric cars, and Huawei Technologies-backed Seres – have turned profitable over the same period. “The fundraising bonanza surrounding China’s EV makers and key car component suppliers is history now,” said Yin Ran, a Shanghai-based angel investor. “So it will be a game of survival, with profitable carmakers becoming the winners, while unprofitable players face running out of funds soon.”
To boost profitability, more Chinese EV makers are expected to double down on overseas sales expansion, including launching specific models targeted at major foreign markets. The average net per-vehicle margin – the gap between the selling price and production costs such as raw materials, labor and logistics – stood at about CNY5,000 among Chinese carmakers. This margin could rise fourfold to CNY20,000 if carmakers were to export more vehicles to overseas markets, where their products could command higher prices. Stephen Dyer, Greater China co-leader and head of Asia automotive practice at AlixPartners, said in July that only 15 Chinese EV brands, or 10% of the country’s total, would turn a profit over the next five years, as price competition continued to squeeze profit margins. The price war could accelerate the pace of consolidation in China’s EV sector, as carmakers that sell fewer than 1,000 units a month are expected to exit the market soon, according to Dyer, as reported by the South China morning Post.
