2026 Negative Growth Alert: The Most Challenging Year Looms Ahead.

How long does it take for a fundamental transformation to occur in an industry's value landscape?

China's automotive market provides the answer: five years.

From a mere 5.4% penetration rate of new energy vehicles in 2020 to a staggering 53.6% by November 2025, China has accomplished in just half a decade what might take Europe a full ten years in terms of electrification.

Now, for every two vehicles sold, one proudly displays a green license plate. The traditional "three big components"—engine, gearbox, and chassis—have been supplanted by new value metrics, including range efficiency, intelligent cockpit experience, and advanced driver-assistance capabilities.

With the value framework reset and the rules of engagement transformed, China's auto industry has quietly undergone a competitive realignment amidst the rapid progress of 2025. New energy vehicles have transitioned from being "trendsetters" to the "mainstream market force."

In 2026, the focus of competition will shift from "whether new energy or fuel vehicles will prevail" to a more daunting and pragmatic challenge facing every automaker: how to achieve profitability and survive in an era of meager profits or even negative growth?

The 2025 Chinese Auto Market: A Story of Two Extremes, Revisiting "Safety"

Standing at the threshold of 2026 and reflecting on the year in China's auto industry, it has been a tale of two extremes—half in flames, half in the sea.

From a data perspective, fuel vehicle sales have indeed rebounded this year, buoyed by significant discounts and promotions. However, this is more akin to a futile attempt to hold back the tide amidst a technological generational gap. For fuel vehicles, the true path forward no longer lies in price competition but in embracing intelligence, with some leading automakers already initiating electrification transitions.

SAIC Volkswagen has unveiled its "Intelligence for Both Fuel and Electric Vehicles" strategy, with Audi and Volkswagen brands launching multiple intelligent new models in a bid to reclaim their voice in the wave of intelligence.

The market's scales have decisively tipped to the other side.

This year, the market share of domestic brands is projected to exceed 65%, a record high. BYD claimed the top spot with sales surpassing 480,000 units in November, including overseas sales exceeding 130,000 units for the first time; Geely Auto's November sales reached 310,000 units, with new energy vehicle models growing by 53% year-on-year and a penetration rate exceeding 60%.

However, prosperity masks divisions.

The gap within the new energy vehicle startup camp has become evident: HiPhi and Leapmotor are approaching monthly deliveries of 80,000 and 70,000 units, respectively, while the once-leading "NIO, Xpeng, and Li Auto" have collectively retreated to below 40,000 units.

Xiaomi Auto has emerged as a dark horse this year, with monthly sales stabilizing below 40,000 units. At the year's end, Xiaomi distributed 100 million yuan in subsidies to dealers, but frequent delivery disputes and safety incidents have exposed its shortcomings in safety and trust, sounding an alarm for the entire industry.

When sales and accidents dominate headlines simultaneously, safety is no longer an optional cost but a survival imperative.

Against this backdrop, 2025 witnessed a silent yet profound return to fundamental values.

On one hand, technology is descending from the heavens at an unprecedented pace in 2025.

Many cars on the market, now priced at just over 100,000 yuan, come equipped with Level 2 intelligent driving features, including self-operating intelligent parking and adaptive cruise control. Battery terminology has finally been standardized as "solid-liquid batteries," eliminating confusion, and their mass production has accelerated simultaneously. CATL and BYD can now achieve ranges exceeding 1,000 kilometers, turning previously daunting long-distance trips into a matter of pressing a pedal.

Charging speeds have also surged. BYD unveiled its super e-platform, introducing "charge for 5 minutes, drive for 400 kilometers" flash charging technology. NIO rolled out its ultra-fast charging and battery swap stations, while CATL introduced its second-generation Shenxing ultra-fast charging batteries. In the future, gas stations, charging stations, and battery swap stations may well vie for dominance on street corners.

Meanwhile, LiDAR has achieved large-scale deployment in 2025. The penetration rate of LiDAR in mid-to-high-end new energy vehicle models (priced above 200,000 yuan) exceeded 60% in 2025, up 30 percentage points from 2024. Domestic LiDAR companies are rising rapidly, with costs dropping by over 40% from 2024.

On the other hand, a "safety reshaping" driven by regulations is underway. Starting from July next year, the "Safety Requirements for Traction Batteries Used in Electric Vehicles" will be formally implemented, raising the safety requirements for power batteries from "alert 5 minutes before fire or explosion" to "no fire, no explosion," and adding new test items such as battery bottom impact tests and safety tests after fast charging cycles.

Meanwhile, the "Technical Requirements for Dynamic Monitoring and Early Warning of Operational Safety Performance of New Energy Vehicles" will also be formally implemented on December 1st, establishing the "30-second rule," which requires vehicles to automatically report high-precision operational data 30 seconds before and after an accident, providing core evidence for accident liability determination.

Even concealed door handles must now be equipped with physical opening devices; batteries and chassis are being integrated into one. This technology, known as CTC/CTP, has a vehicle installation rate exceeding 40%, making the body sturdier and the batteries safer.

The state has set the strictest standards, drawing an impassable safety line for the industry's rapid growth.

Looking at 2025, the core of competition in China's auto market has shifted. It is no longer a superficial contest of parameters and online attention, but a value war driven by the dual cores of "safety" and "intelligence."

Farewell to Rapid Growth, Entering the Deep Waters: The 2026 Chinese Auto Market Faces a Value Final Exam

Farewell to the rapid growth of 2025, China's auto market in 2026 stands at a delicate crossroads.

At the year-end annual meeting of the Automotive Circulation Association, experts' predictions have been cautious: if policies continue to support, the market may maintain a slight growth of 1% to 3% next year; in the worst-case scenario, it may stagnate. However, Morgan Stanley's report offers a bleaker expectation of a 5% decline, while S&P Global and Cui Dongshu, Secretary-General of the China Passenger Car Association, also point towards a negative growth of around 2%.

The "era of rapid growth" fueled by trends and subsidies has come to an end.

The first constraint comes from the rational return of policies. Starting from 2026, the purchase tax exemption for new energy vehicles will be adjusted from full exemption to a 50% reduction. This means consumers will need to pay an additional 15,000 yuan for a 300,000-yuan new energy vehicle.

Minmetals Securities predicts that this adjustment may lower the growth rate of new energy vehicles from 27% to 15%.

Meanwhile, subsidies such as trade-ins may also tighten. Amidst this increase and decrease, the market will truly test the endogenous growth momentum of new energy vehicles for the first time, especially for the price-sensitive market below 150,000 yuan.

A greater chill has already pervaded in 2025. In October this year, the industry's average profit margin fell to a five-year low of 3.9%, with nearly half of automakers operating at a loss. Gui Shengyue, CEO of Geely, publicly warned of an "industry shakeout," while Li Bin of NIO set "profitability" as the bottom line for survival.

The "Price Behavior Compliance Guidelines" issued at the end of 2025 further put an end to the distorted competition mode of "competing to see who can lose more money." The rules have changed, and the game has entered the "deep waters" of competing for real value.

Overall, surviving as an automaker in 2026 will become increasingly difficult. To survive in the deep waters, there are only two paths: expanding outward and moving upward.

For many automakers, globalization has become a "lifeline" to absorb domestic overcapacity and seek certain growth.

In 2025, China's auto exports are expected to approach 7 million units, marking not just numerical growth but also evolutionary progress in modes.

BYD has set its overseas target for 2026 at over 1.5 million units, while Chery, Geely, and other companies are accelerating their localized production steps. Supply chain companies such as CATL and EVE Energy are also going global simultaneously—China's auto industry is upgrading from "product exports" to "supply chain exports."

The second path is to answer "how to create new value." In 2026, Level 3 autonomous driving will move from laboratories to highways, with the first batch of approved models from Changan and ARCFOX just the beginning; tests by companies such as XPeng, BYD, and HiPhi are also poised to launch.

But technological breakthroughs extend far beyond this—BYD has partnered with DJI to explore new possibilities in intelligent driving, Huawei has empowered cockpits to create intelligent travel experiences, XPeng is deploying robots, and Li Auto has launched AI glasses. The car is evolving from a mere means of transportation into a "super intelligent terminal" connecting robots, the low-altitude economy, and artificial intelligence.

Future competition among automakers will no longer be solely about car-making capabilities but about the ability to define the value of cars in the new era.

There's a saying: "Large cycles depend on systems, medium cycles on industries, and small cycles on entrepreneurial spirit." China's auto market in 2026 happens to stand at the intersection of these three cycles.

Policies are regulating, industries are reconstructing, and entrepreneurs' choices and decisions will largely determine the fate of their companies. What we see is no longer a simple pursuit of scale expansion but long-term adherence to technological routes in an era of meager profits, seeking differentiated survival spaces in red ocean competition, and strategic foresight in building second growth curves through global layouts.

The forty-year rise and fall of China's auto industry tell us: every deep adjustment is for the next more powerful leap.

2026 may well be the moment to squat down before the leap.

References:

1. "Three Keywords to Understand the 2026 Auto Market!" by Zhidian Chexun

2. "Looking Ahead to 2026: Authoritative Experts Predict Six Trends in the Auto Industry" by China Automotive News

3. "2025 Auto Industry Research Report" by iResearch