Dozens of Chinese EV makers under pressure to fold or trim operations in 2026: analysts

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.\nAbout 50 unprofitable mainland 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.\n“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 eastern Zhejiang province. “Performance next year will be crucial for most of the unprofitable EV assemblers.”\nGrappling with expiring cash subsidies and tax incentives, the domestic car market is forecast to see deliveries slump next year even if assemblers offer steep discounts to lure buyers, according to the consensus forecast among auto analysts.\nBeijing is expected to announce whether the 20,000 yuan (US$2,852) trade-in subsidy would be renewed in January.\nEV buyers are currently exempt from a 10 per cent purchase tax. These purchases will incur a 5 per cent tax from January until the regular 10 per cent tax rate returns in 2028.\n\nDeutsche Bank last month predicted that total vehicle deliveries in the country would plunge 5 per cent in 2026. In October, JPMorgan forecast total China car sales – both petrol-based and EVs – could drop between 3 per cent and 5 per cent next year.\nThose 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 in a race to gain a technological edge over their rivals in the market, which depressed their earnings outlook.\nOnly 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.\n“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.”\nTo boost profitability, more Chinese EV makers are expected to double down on overseas sales expansion, including launching specific models targeted at major foreign markets.\nChina’s overall vehicle output, including buses and lorries as well as passenger cars, may hit 33 million units in 2025, compared with an estimated capacity of around 50 million units, Nick Lai, head of auto research in Asia-Pacific at JPMorgan, said in October.\nThe average net per-vehicle margin – the gap between the selling price and production costs such as raw materials, labour and logistics – stood at about 5,000 yuan among Chinese carmakers, according to Lai.\nHe added that this margin could rise fourfold to 20,000 yuan if carmakers were to export more vehicles to overseas markets, where their products could command higher prices.\n\nStephen Dyer, Greater China co-leader and head of Asia automotive practice at AlixPartners, said in July that only 15 Chinese EV brands, or 10 per cent of the country’s total, would turn a profit over the next five years, as price competition continued to squeeze profit margins.\nThe 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.\nChina EV100, a non-governmental organisation composed mostly of EV sector executives, said in a report earlier this month that five to six Sino-foreign joint venture carmakers, whose annual deliveries are fewer than 100,000 units, would face liquidation over the coming few years.\nInternational marques like Ford Motor, Mazda Motor and Lincoln run China-based ventures whose annual deliveries fall short of the 100,000 unit mark, according to official car insurance registration numbers.\n“We expect China passenger vehicle overseas sales volume to continue to enjoy double-digit growth in 2026, or up by 13 per cent year on year, which would boost wholesale sales by 750,000 units due to increasing localised production, expanding product portfolio and entry into new markets,” the Deutsche Bank report said.\nThe increased volume would represent 3 per cent of the projected full-year deliveries in 2026, it added.\n