<div id="readability-page-1">China’s car industry is expected to stagnate this year as it tries to catch its breath after years of growth. New energy vehicles (NEVs) are likely to continue increasing their market share but growth will be much lower than in recent years, with the penetration rate reaching around 60 per cent.\n“Involution” was the major theme last year, and despite efforts by the government and manufacturers, the situation is unlikely to improve until the second half of the year, due to a tepid economy and a wait-and-see consumer attitude. This has had a significant impact on manufacturers’ profitability, with the January-November average profit rate at 4.4 per cent, just 0.1 percentage point above 2024’s record low. Domestic car sales for 2026 are likely to remain flat, with at best an increase of 3 per cent and first-half sales lower year over year.\nSuccess in such a marketplace will be determined by both exports and technological innovation. Since 2021, Chinese car exports have grown rapidly and last year’s total is expected to have exceeded 7 million units, with BYD alone surpassing 1 million.\nCutthroat domestic competition means financial success is often tied to the ability to compete overseas. Car exports are expected to keep rising, but more slowly due to increasing protectionism, to around 8.5 million this year.\nOne trend, though, will be the rise in Chinese cars produced outside China. Changan Automobile recently became the second Chinese carmaker in Thailand after BYD to export cars to Europe. BYD, which has been busy opening factories around the world, is due to open its factory in Hungary this year, the largest assembly plant to date from a Chinese producer in Europe.\n\n\nBYD and Geely are set to be the largest beneficiaries of the export drive, as are state-owned enterprises (SOEs) with more competitive brands such as Chery Automobile and SAIC Motor.\nAmong the three US-listed NEV start-ups, Xpeng has the most success in exports, and both Nio and Li Auto will seek to replicate this. Although Nio has been exporting since 2021, the brand has struggled to gain sales in Europe. Its new hope is the Firefly brand. Li Auto, on the other hand, has always relied on the domestic market. But it has found demand for its extended-range electric vehicles (EREVs) wavering, and has not achieved success with its all-electric offerings, prompting the company to expand into export markets.\nWith prices at rock bottom, expect producers must compete largely on technology. BYD sold 4.55 million cars in 2025, a small increase over 2024, and would have done worse if not for its exports. It claims it will counter slowing sales with technological innovations. One of these is expected to be the long-awaited Blade 2.0 battery – and more models featuring ultra-fast charging.\nBYD’s leadership is being challenged on multiple fronts. Notably, Geely’s NEV sales now account for more than half its total sales. As Geely and Chery continue to rise, they will be challenging BYD for the most efficient plug-in hybrid electric vehicle (PHEV) system. Xiaomi, meanwhile, has been a phenomenon since it launched its first car in 2024 and will reportedly introduce two EREV models this year, when its sales are likely to exceed 600,000.\nMarket conditions for start-ups will be very challenging this year but there will be some winners. I expect Xpeng and Nio to achieve sales of around 500,000 each, while Leapmotor will do even better, hitting possibly 700,000. Others are likely to stagnate or experience sales decreases.\n\n\nChips will be a new battleground. Chinese cars have relied mainly on Nvidia Orin X and Thor chips for driver-assistance systems and the Qualcomm Snapdragon series for infotainment. Xpeng and Nio have begun replacing Nvidia chips with self-developed silicon. Geely subsidiary SiEngine is producing a 7-nanometre chip for autonomous driving. Expect Chinese cars to rapidly lose their reliance on Nvidia and Qualcomm chips.\nThere are around 30 Chinese producers and 10 international players in the Chinese car market, together offering over 100 brands. Since I began writing about China’s car industry in 2007, there has been talk of consolidation. Consolidation is more necessary than ever – but highly unlikely to happen this year.\nConsolidation is far more likely in the battery sector. This is dominated by Contemporary Amperex Technology Co (CATL) and BYD, who together control nearly two-thirds of total installations in Chinese electric vehicles.\n\n\nAs a new industry, the battery market has no entrenched SOEs, with companies largely private. Technological and regulatory headwinds are creating conditions for weaker players to disappear. There is the push into solid-state and sodium batteries, which requires considerable investment. Then there is the new national standard for batteries coming into force on July 1, which specifies that electric vehicle batteries must not catch fire or explode.\nBattery maker Sunwoda Electronic Co, for instance, was recently hit with a 2.31 billion yuan (US$330.26 million) lawsuit by Geely over quality issues. The damages claimed are nearly equal to Sunwoda’s combined net profit for 2023 and 2024. Li Auto has also reportedly struggled to persuade customers who pre-ordered its i6 car to accept Sunwoda batteries over CATL ones. Sunwoda batteries are thought to be 15-20 per cent cheaper but consumers perceive them to be of lower quality.\nGiven these problems, Sunwoda is a prime candidate among the smaller players to disappear in a year of industry consolidation. The strongest will gain market share at the expense of the rest, with car exports and technology the keys to profitability.\n</div>

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<p>China's car industry is expected to stagnate in 2026, with new energy vehicles (NEVs) increasing market share but at a slower rate. Profitability is impacted by a tepid economy, with domestic sales projected to rise only 3%. Exports are crucial for success, with BYD and Geely leading the charge. Competition will intensify as companies innovate technologically, particularly in battery development. The market faces challenges, but some start-ups like Xpeng and Leapmotor may thrive. Consolidation is likely in the battery sector, driven by technological advancements and regulatory changes.</p>

- China's car industry is expected to stagnate in 2026, with new energy vehicles projected to have a penetration rate of around 60 percent.  
- Domestic car sales are likely to remain flat, while exports are predicted to rise but at a slower pace due to protectionism, with BYD and Geely positioned to benefit the most.  
- The battery sector may see consolidation as companies like Sunwoda face quality issues, while stronger players are anticipated to gain market share through technological advancements.

Innovation and exports will winnow China’s car industry in 2026