2026 Outlook for China's Automotive Industry: Electrification Transformation, Competitive Landscape, and Investment Opportunities

Now, based on collected data and industry information, I will present a systematic and comprehensive analysis report on the 2026 development outlook of China’s automotive industry.

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2025 was a milestone year in the development history of China’s automotive industry. According to data released by the China Association of Automobile Manufacturers (CAAM), the full-year automobile production and sales in 2025 reached

respectively, with year-on-year growth of 10.4% and 9.4% respectively, exceeding early-year expectations [1][2]. China’s annual automobile production and sales have ranked first in the world for 17 consecutive years, among which the annual production and sales of passenger vehicles exceeded the mark for the first time [1][2].

New energy vehicles (NEVs) continued their strong growth momentum. In 2025, NEV production and sales reached

respectively, with year-on-year growth of 29% and 28.2% respectively [1][2]. NEV sales accounted for of total new vehicle sales, an increase of 7 percentage points compared to the same period last year [1]. Notably, in the passenger vehicle market, the penetration rate of domestic NEV passenger vehicles has approached , and looking at monthly retail data alone, the retail penetration rate of NEVs exceeded the for the first time in December [3][4].

Chart: Trend of NEV Sales and Penetration Rate in China (2015-2025)

          Sales (10,000 units)     Penetration Rate (%)
2015      33.1          1.35%
2016      50.7          1.81%
2017      77.7          2.69%
2018      125.6         4.47%
2019      120.6         4.68%
2020      136.7         5.40%
2021      352.1         13.40%
2022      705.8         25.64%
2023      949.5         31.55%
2024      1286.6        40.90%
2025      1649.0        47.90%

Source: China Association of Automobile Manufacturers [1][2]

In 2025, the market share of Chinese-brand passenger vehicles further increased, approaching

[1][2]. This figure marks a historic transformation of China’s automotive industry from ‘market for technology’ to ‘technology wins market’. Chinese brands have an even more obvious advantage in the NEV sector, with the retail penetration rate of NEVs under Chinese brands reaching as high as in November, far outperforming mainstream joint-venture brands (6.8%) [3].

Starting from January 1, 2026, China will implement a

policy, replacing the policy that has been in place for the previous 10 years [5][6]. This policy change marks a shift in the development logic of China’s NEV industry from ‘policy-dependent growth’ to ‘market-driven growth’ [5][6].

Many automaker executives have stated that the phase-out of the purchase tax exemption will drive automakers to shift from price competition to value competition. Lu Fang, Chairman of Voyah Automobile, said: ‘Once we reach this point, fuel vehicles and NEVs will, to some extent, face an ultimate showdown’ [6]. The industry generally expects that competition between NEVs and fuel vehicles will become more intense in 2026, but NEVs will still maintain rapid development due to their leading product strength [5][6].

Zhu Jiangming, Chairman of Leapmotor, predicts that the market share of domestic NEVs in 2026 will

based on 2025 levels [5]. The Passenger Car Market Information Joint Committee of the China Automobile Dealers Association predicts that domestic passenger vehicle retail sales will reach approximately 24 million units in 2026, with year-on-year growth of 1%, and the , an increase of about 0.6 percentage points compared to the previous year [7].

The 2024 ‘trade-in’ policy significantly stimulated market demand, demonstrating the remarkable effect of policy measures in driving demand [8]. Looking ahead to 2026, the policy is expected to evolve from a phased stimulus to a regular tool, further improving policy precision by emphasizing both ‘scrapping and replacement’ [8]. China’s automobile market has steadily stood at the annual sales platform of 31 million units, and the huge ownership volume of 350 million units lays a foundation for subsequent updates [8].

Affected by the scrapping cycle from 2008 to 2016, a large number of existing vehicles are accelerating into the scrapping period. The annual scrapping volume is still far lower than new vehicle sales, and the replacement gap continues to expand [8]. This will provide medium- to long-term growth space for the automobile market.

2025 market data shows that after the NEV penetration rate exceeded 50%,

[8][9]:

• Mass Market (Below RMB 200,000)
  : The deployment of 800V high-voltage platforms in the mass market has significantly improved charging efficiency, driving the growth rate of battery electric vehicles (BEVs) to surpass that of plug-in hybrid electric vehicles (PHEVs) and extended-range electric vehicles (EREVs) [8]
• Premium Market (Above RMB 300,000)
  : ‘Large-battery long-range EREVs’ remain the mainstream solution for full-size SUVs/MPVs, as they can meet both urban pure electric commuting needs and long-distance travel anxiety-free [8]

This trend is expected to continue to deepen in 2026. In the medium to long term, the maturity of solid-state/semi-solid-state batteries is expected to overcome the range bottleneck of BEVs, enabling a structural transition from ‘premium EREVs’ to ‘high-performance BEVs’ in the premium market [8].

In 2025, ‘

’ became a reality [3]. Represented by BYD, its ‘Sky Eye’ high-level intelligent driving assistance system has been equipped on the Seagull model with a starting price of only [3]. It is predicted that the hardware cost of highway Navigation on Autopilot (NOA) will drop to , and the hardware cost of urban NOA is expected to enter the range [3].

Intelligent driving is rapidly shifting from a premium ‘showboating’ feature to a popular configuration for economy vehicles, which means:

• Intelligent configurations will become a core consideration in vehicle purchase decisions
• Models priced below RMB 200,000 will accelerate the adoption of high-level intelligent driving functions
• The computing power race will drive System-on-Chip (SoC) chips to become a core constraint

The growth of new energy heavy-duty trucks and light-duty trucks has officially entered an accelerated phase [8]. The electrification of commercial vehicles has crossed the critical point and entered a stage of spontaneous growth:

• Heavy-Duty Truck Segment
  : Against the backdrop of oil-gas price gaps, battery cost reduction, and the deployment of megawatt-level ultra-fast charging, the Total Cost of Ownership (TCO) payback period has fallen into the
  1.5-2 years
  range for the first time [8]
• Light-Duty Truck Segment
  : With tightened road access rights in core urban areas and prominent energy consumption advantages, the foundation for electrification of urban distribution has been fully established [8]

In the next three years, the penetration rate of new energy commercial vehicles is expected to show

, and the phase-out of fuel vehicles will be faster than expected [8].

In 2026, traditional automotive groups will generally adhere to a

strategy, with deepened transformation of NEV business and expansion of overseas markets as core focus areas [7]. In contrast, new force automakers, relying on their high-speed delivery momentum and product reputation accumulated in 2025, have set that significantly exceed the industry average growth rate [7].

Chart: Comparison of 2026 Sales Targets of Major Automakers

Automaker           2025 Actual/Estimated Sales    2026 Target    Year-on-Year Growth Rate
------------------------------------------------------------
Geely Automobile         3 million units              3.45 million units       +15%
Changan Automobile         2.91 million units              3.3 million units       +13%
Chery Group         2.806 million units           3.2 million units       +14%
Dongfeng Group         -                   3.25 million units       -
Leapmotor         596,600 units           1 million units       +68%
Xiaomi Auto         410,000 units              550,000 units        +34%
NIO             ~326,000 units           450,000-490,000 units     +40-50%
Li Auto         406,000 units            -             -

Source: Securities Times, Company Announcements [7]

Gui Shengyue, Chief Executive Officer of Geely Automobile, predicts that China’s automotive industry will enter a phase of ‘

’ in 2026, and automakers that can succeed must have more stable strategic focus, more profound automotive manufacturing heritage, and more correct strategic methods [5][6].

William Li, Chairman of NIO, said: ‘The competitive landscape of automakers will not be settled in the short term. China’s domestic NEV industry entered the ‘final stage’ around 2024, and it is expected to take 5 years to see the basic outline, and 10 years to enter a stable pattern’ [5][6].

Compared with developed country markets where the industry concentration index (CR10) generally exceeds 90%,

[7]. Although the elimination race for whole vehicle manufacturers has been steadily accelerating, due to the continuous strategic adjustments and shortcoming improvements by various players, this industry consolidation is likely to become a [7].

The competitive landscape of new force automakers changed significantly in 2025:

• Leapmotor
  : With cumulative annual deliveries exceeding
  536,000 units
  and year-on-year growth of
  113.42%
  , it became the ‘nine-time champion’ among new forces [3], and directly set a sales target of
  1 million units
  for 2026 [7]
• XPeng Motors
  : Annual cumulative new vehicle deliveries reached
  429,400 units
  , a record high, with strong year-on-year growth of
  126%
  [10][11]
• NIO
  : Annual cumulative new vehicle deliveries reached
  326,000 units
  , a new annual delivery record, with year-on-year growth of
  46.9%
  [10]
• Li Auto
  : Annual deliveries reached
  406,000 units
  , a year-on-year decrease of approximately
  19%
  , with an annual sales target completion rate of only
  63.48%
  [10][12]

Notably, Leapmotor achieved a turnaround from a ‘second-tier new force’ to the ‘top new force’ by virtue of its cost-effective strategy and successful extended-range technical route [10][12].

As a leading enterprise in China’s NEV industry, BYD narrowly retained its position as the top domestic automaker in the first half of 2025, with automotive business revenue only RMB 8.17 billion higher than SAIC Motor [6]. However, in the second half of 2025, BYD’s sales fell both year-on-year and month-on-month for several months. From July to November 2025, its monthly sales decreased by 15.63%, 14.29%, 15.89%, 24.11%, and 26.81% year-on-year respectively [6].

Wang Chuanfu, Chairman of BYD, stated that the decline in BYD’s domestic sales since 2025 is mainly due to the fact that its current technological leadership is not as strong as in previous years, the market appeal of its technological achievements has decreased, and the industry’s homogenization characteristics have gradually become obvious [6].

[13]:

• Market Capitalization: USD 86.339 billion
• Price-to-Earnings Ratio (P/E): 22.79x
• Return on Equity (ROE): 17.62%
• Net Profit Margin: 4.56%
• Financial Stance:
  Conservative
  (High Depreciation/Capital Expenditure Ratio)

BYD’s free cash flow reached RMB 36.094 billion [13], demonstrating strong cash generation capacity. However, its current ratio is only 0.87 [13], and short-term debt repayment pressure deserves attention.

Geely Automobile exceeded its 3 million unit sales target in 2025, and set a sales target of

for 2026, with year-on-year growth of approximately 14% [7]. Among them:

• Geely brand is responsible for 2.75 million units in sales
• Zeekr and Lynk & Co target 300,000 units and 400,000 units respectively [7]

The NEV business has become the top priority for Geely Automobile. Its 2026 NEV sales target reaches

, with year-on-year growth of 32%, and the NEV penetration rate will increase from 55.8% in 2025 to [7].

[13]:

• Financial Stance:
  Neutral
  (Balanced accounting practices)
• Debt Risk:
  Low Risk
• Free Cash Flow: RMB 8.203 billion

Geely Automobile has a sound financial situation, and its low debt risk provides a strategic buffer space for it in fierce competition.

Chart: Financial Comparison of New Force Automakers in Q3 2025

Indicator              NIO           XPeng          Li Auto
-------------------------------------------------
Operating Revenue (RMB 100 million)    -             2038         2740
Gross Margin            -             20.1%         -
Net Profit (RMB 100 million)      -             -38          -62.4
Cash Reserve (RMB 100 million)    -             4833         ~10000+
YoY Change in Gross Margin    -             +4.8pct       -

Source: Company Financial Reports, Gasgoo [10][11]

: In Q3 2025, total revenue reached RMB 20.38 billion, with year-on-year growth of 101.8% [11]; gross margin was 20.1%, a record high [11]. The company expects to achieve in Q4 2025 [11].

: In Q3 2025, net loss reached RMB 624.4 million [10], facing its first quarterly loss since listing. However, Li Auto still maintains a cash reserve of over RMB 100 billion [12], providing a certain buffer space for transformation.

Intelligent driving architectures are transitioning to

systems, connecting the entire link between perception and decision-making to achieve more efficient scenario generalization [8]. At the same time, has accelerated the rollout of highway and urban NOA functions to models priced below RMB 200,000 [8].

The continuous acceleration of Level 3 (L3) policies provides leading automakers with opportunities for full competition and rapid iteration in the field of high-level intelligent driving [8]. Algorithm upgrades have significantly increased the demand for on-vehicle computing power and bandwidth, making

a core constraint for model implementation, and the computing power race is moving towards the 100 TOPS or even higher range [8].

Intelligent cockpits have become a ‘default configuration’ in NEVs, and the degree of intelligence has

in vehicle purchase decisions [8]. Consumer attention is shifting to visual, perceptible components:

• Head-Up Display (HUD) is accelerating its deployment in mainstream price segments
• Large model-driven cockpits have triggered a computing power race
• Cockpit operating systems (OS) are upgrading from human-machine interfaces to multi-modal intelligent interaction systems

In the future, cockpits will shift from passive response to active demand understanding, and enterprises with technical barriers and cross-border integration capabilities will benefit significantly in the competition for system experience [8].

The

selected at the 2025 World New Energy Vehicle Congress have pointed out the direction [3]:

• Huawei’s
  Megawatt Charging Technology
• Full-Domain AI Large Model for New Energy Batteries
• Solid-state/semi-solid-state batteries
• Next-generation electric drive systems

The focus of industrial innovation has gone beyond electrification itself, and has penetrated into underlying technology fields such as energy, algorithms, and chips [3].

In 2025, total automobile exports exceeded

, reaching 7.098 million units, with year-on-year growth of 21.1% [1][2]. In the first 11 months, NEV exports reached , doubling year-on-year [3].

China’s automobile exports have achieved a qualitative change from ‘product export’ to

[3]. The export model is no longer simple trade. In places like Thailand, led by whole vehicle enterprises such as BYD and Great Wall Motor, power battery enterprises such as CALB and Gotion High-Tech, and component giants such as Ningbo Tuopu, have followed suit to build factories, forming a industrial chain collaborative export model [3].

Facing tightened tariffs and trade rules, automakers are shifting from single whole vehicle exports to

, breaking through growth bottlenecks through ‘industrial cluster export’ [8]. Around 2026, the dual-drive of domestic and overseas markets will help China’s automobile industry transition from quantitative leadership to qualitative leadership [8].

Based on the 2026 industry development trends, the following investment themes are recommended:

• Industrial chains of intelligent driving chips, sensors, high-precision maps, etc.
• Technology enterprises with integrated software capabilities
• Leading intelligent cockpit enterprises such as Desay SV (002920.SZ) [13]

• Enterprises with scale advantages and vertical integration capabilities of the industrial chain
• Enterprises with leading overseas layout and high certainty of export growth
• Leading domestic automakers such as BYD and Geely Automobile

• Leading enterprises of new energy heavy-duty trucks and light-duty trucks
• Battery swap mode operators
• Power battery recycling and utilization enterprises

• M&A expectations during industry reshuffle
• Value revaluation of high-quality assets

Chart: Comparison of Valuation Indicators of Major Automakers

Company           Market Capitalization (USD 100 million)   P/E     P/B     ROE      Financial Stance
---------------------------------------------------------------
BYD         8633.9        22.79x  3.98x   17.62%   Conservative
Desay SV       810.9         31.55x  5.14x   21.62%   -
Geely Automobile (HK)   -             -       -       -        Neutral/Low Risk

Source: Jinling API [13]

1. Prolonged Price War
   : In 2025, the price war represented by ‘limited-time fixed prices’ intensified in the first half of the year and abruptly stopped in the second half, after which automakers collectively stated their opposition to ‘involution’ and called for a ‘value war’ [6]. However, price competition pressure may still continue to erode profits.
2. Policy Phase-Out
   : The implementation of the halved NEV purchase tax policy may affect terminal demand in the short term.
3. Supply Chain Pressure
   : Some automakers have passed on cost pressure to upstream enterprises in an disorderly manner, leading to excessive extension of payment terms for small and medium-sized enterprises [3].

1. Technological Iteration Risk
   : The industry’s technological iteration speed is extremely fast, and enterprises’ existing advantages may be gradually diluted [10].
2. Capital Pressure
   : New force automakers generally face profitability pressure, and cash flow management is crucial.
3. Increased Market Concentration
   : The Matthew Effect continues to strengthen, compressing the survival space of small and medium-sized automakers.

1. Penetration Rate Crosses the Watershed
   : In 2025, China’s NEV penetration rate exceeded 50%, marking a complete transformation of electrification from an ‘alternative option’ to the ‘market mainstream’, and it is expected to further increase to around 61% in 2026.

2. Change in Competition Logic
   : The phase-out of the purchase tax exemption drives the industry from ‘policy-dependent growth’ to ‘market-driven growth’, and automaker competition will shift from scale competition to quality competition and value competition.

3. Popularization of Intelligence
   : Intelligent driving functions are accelerating their rollout to the mass market, ‘equal access to intelligent driving’ has become a new trend, and computing power chips and software capabilities have become core competitiveness.

4. Accelerated Industry Reshuffle
   : 2026 will see a phase of ‘survival of the fittest’, leading enterprises with systematic advantages will achieve higher conversion efficiency in mainstream price segments, and small and medium-sized automakers will face greater survival pressure.

5. In-Depth Globalization Development
   : From product export to industrial localization, the industrial chain collaborative export model has become the mainstream, but it faces challenges from tariffs and trade rules.

• Strategic Allocation
  : Core suppliers of intelligent technologies (such as Desay SV, etc.