Chinese EV Makers Face Survival Crisis as Demand Weakens

Market Challenges and Profitability Issues

The Chinese electric vehicle (EV) market is facing significant challenges as around 50 manufacturers struggle with profitability amid weakening domestic demand. Analysts project that vehicle deliveries in China could decline by 5% in 2026, marking the first contraction since 2020. This downturn is primarily driven by excess industry capacity and reduced government support.

The end of cash subsidies and tax incentives is creating additional pressure on manufacturers. Starting January 2026, EV purchases will be subject to a 5% tax, increasing to 10% in 2028. This change is expected to further dampen demand in a market already struggling with intense price competition.

Current Market Dynamics

Only a handful of Chinese EV manufacturers, such as BYD and Seres (backed by Huawei Technologies), have managed to achieve profitability. Most others continue to operate at a loss, relying on substantial investments in research and development (R&D) that have yet to yield positive returns. The current average net margin per vehicle among Chinese manufacturers is approximately 5,000 yuan, a figure that could potentially quadruple to 20,000 yuan if exports to higher-priced markets are expanded.

Path Forward: Global Expansion

To improve profitability, Chinese EV makers are accelerating their global expansion strategies. This includes launching models tailored to major international markets and increasing local production. According to JPMorgan's Nick Lai, expanding exports to markets with higher selling prices could significantly boost margins. Deutsche Bank projects that Chinese passenger vehicle exports will grow by 13% in 2026, reaching around 750,000 units.

Industry Consolidation Expected

The intensifying competition is likely to accelerate industry consolidation. Stephen Dyer of AlixPartners predicts that only 15 Chinese EV brands (about 10% of current players) will remain profitable within the next five years. Manufacturers selling fewer than 1,000 units per month are particularly vulnerable to being pushed out of the market. Joint ventures with annual sales below 100,000 units, including those involving international brands like Ford and Mazda, are also at risk of liquidation.