As 2026 dawns, the atmosphere within China's automotive industry has undergone a stark transformation compared to previous years. The era of growth propelled by subsidies is drawing to a close, giving way to a phase marked by market contraction and restructuring.

With subsidies and tax incentives visibly “diminishing,” coupled with a sluggish performance in China's auto market during the fourth quarter, multiple agencies forecast a 7% decline in sales for 2026—the first anticipated annual drop since 2020.

2026 Outlook: Contraction and Restructuring Loom

On the final day of 2025, the nationwide trade-in subsidy policy for 2026 was officially “rolled out.” Although the maximum subsidy for scrapping new energy vehicles remains at 20,000 yuan and for fuel vehicles at 15,000 yuan—unchanged from 2025—the subsidy per vehicle has shifted from a fixed amount to a proportion of the vehicle price.

Combined with the previously announced adjustment of the purchase tax exemption for new energy vehicles from “full exemption” to a “50% reduction,” with a maximum tax reduction per vehicle not exceeding 15,000 yuan, the cumulative impact of these two policies will drive up the actual purchase price of new energy vehicles by 5% to 8%, thereby influencing consumer purchasing intentions.

Notably, due to foreseeable policy adjustments, the domestic auto market has experienced “over-consumption.” Despite some automakers introducing new purchase incentives at the start of the year, first-quarter sales data still reveal a significant downturn.

Reflecting on 2025, China's auto market followed a trajectory characterized by sluggish growth in the first half, a peak in the middle, and stabilization in the latter half. The China Electric Vehicle 100 Forum projects domestic auto sales of approximately 28.2 million units in 2026, marking a slight 2% year-on-year increase. However, overseas institutions adopt a more cautious stance, predicting a 7% decline in domestic sales. The rationale behind this divergence is evident: explosive growth driven by robust policy incentives is no longer sustainable.

The gradual phasing out of purchase tax incentives and the tightening of local subsidies have directly impacted consumer purchase costs. A salesperson from a new energy vehicle brand disclosed during the New Year holiday, “Demand was exhausted at the end of last year. This quarter's lead volume and showroom traffic are significantly colder compared to the same period last year.”

Exports are poised to become the most pivotal “growth engine” for the industry. With domestic demand under pressure, “going global” has transitioned from a strategic option to a necessity. The industry widely anticipates China's auto exports to exceed 8 million units in 2026, with agencies projecting a 16% increase. This signifies not merely quantitative growth but also a model upgrade—from early-stage trade exports to the current establishment of full-process production bases overseas by companies like BYD and Great Wall Motors, as Chinese automakers strive for higher localization rates and brand value.

Polarization: Leading Firms Strengthen, Mid-Tier Players Face Pressure

China's auto market in 2026 will witness a “tale of two extremes.” The market landscape will become more concentrated, with Chinese brands expected to capture 75% of the passenger vehicle market share, further consolidating the advantages of leading firms.

Leading companies continue to expand their dominance. The market share of the top five automakers rose from 33.9% in 2021 to 44% in 2025, while the top ten saw their share increase from 57.3% to 61.9%. In 2026, these figures may climb even higher, with resources, technology, capital, and brand influence accelerating towards leading firms. Leveraging full industry chain layouts, economies of scale, and rapid technological iteration, these companies are constructing increasingly formidable competitive barriers.

Persistent “price wars” have severely eroded profits, while research and development of cutting-edge technologies like autonomous driving and AI large models necessitate sustained multi-billion-dollar investments. For numerous second-tier new brands and regional automakers that have yet to achieve scaled profitability and lack unique technological differentiators, financial strain is unprecedented.

Industry analysis suggests that around 50 unprofitable electric vehicle companies will face risks of business contraction or closure. An automotive analyst at an investment firm candidly stated, “The theme of 2026 is not ‘who thrives’ but ‘who survives.’ Capital markets are no longer swayed by narratives; cash flow and gross margins are the only tangible metrics.”

2026 will also serve as a pivotal year for joint-venture automakers to evaluate their electric transformation strategies. Some brands are fully embracing Chinese tech giants, while others aim to leverage their deep hybrid technology expertise to cater to the transition needs of a vast fuel vehicle user base. However, with diminishing brand prestige and slower product iteration compared to Chinese brands, some joint ventures may witness their market share shrink further below survival thresholds.

New Consumption Trends: From Spec Wars to Experience Wars

As market growth decelerates, consumer purchasing logic is evolving. The keywords for 2026 are “experience” and “value.”

Premiumization is becoming increasingly evident. On one hand, high-end pure electric models, with their higher unit prices, hold an advantage under the new subsidy mechanism. On the other hand, the rising proportion of multi-child families is driving demand for mid-to-large-sized vehicles with ample space.

Intelligence is becoming the norm. Agencies predict that by 2026, the penetration rate of L2+ autonomous driving will reach 32%, surpassing 50% by 2030. AI large models are deeply integrated into automotive manufacturing, with the “software-defined vehicle” trend becoming more pronounced.

Reliability and service are undergoing re-evaluation. While price remains a key consideration for consumers, multiple industry agencies predict that the next phase of automotive market growth will be driven more by structural and experiential upgrades, leading to higher-quality growth.

Meanwhile, consumer choices are becoming more rational and diversified. Plug-in hybrids (including extended-range models) continue to shine. Agencies forecast that plug-in hybrid sales will outpace pure electric vehicles again in 2026 (by 9%). In third- and fourth-tier cities and vast rural markets where charging infrastructure remains incomplete, plug-in hybrids, offering both fuel and electric capabilities without range anxiety, better meet the needs of first-time or additional vehicle purchases, becoming the top alternative to fuel vehicles.

The pure electric market faces a “squeeze at both ends, struggle in the middle,” exhibiting clear structural differentiation. At one end, micro/small commuter vehicles priced below 100,000 yuan continue to penetrate lower-tier markets with their extremely low energy consumption and operating costs. At the other end, high-end/niche models priced above 300,000 yuan attract consumption upgrade users with ultra-fast charging, battery range, or unique brand appeal. Meanwhile, pure electric family vehicles in the 150,000–250,000 yuan price range will face dual pressure from fuel vehicles and cost-effectiveness.

Channels and Distribution: Dealer Transformation and Used Car Breakthroughs

Profound changes at the market's end will deeply impact the entire automotive distribution chain.

On one hand, dealer networks are accelerating consolidation and mode innovation. Faced with shrinking new vehicle profits and fragmented customer traffic, the traditional authorized 4S dealership model is under immense pressure. In 2026, we will witness more brands adopting a “direct sales + authorized” hybrid model. Dealer groups will transform into “comprehensive user service providers,” deeply exploring value chains such as after-sales, insurance, modifications, and used car trade-ins. Single outlets unable to adapt and offer differentiated services will face elimination or consolidation.

The used new energy vehicle market is entering a critical “ice-breaking” phase. With the first large-scale mass-produced new energy vehicles entering the replacement phase, the challenges of used vehicle circulation can no longer be overlooked. In 2026, automakers and industry bodies will jointly drive two major reforms: first, establishing transparent and unified battery health assessment standards to make State of Health (SOH) metrics reliable;

second, the official certified used vehicle businesses of automakers will flourish, offering extended warranties, quality guarantees, and even battery refresh services to endorse used vehicles and boost residual values. These measures will gradually alleviate consumer concerns about used new energy vehicles, activate the inventory market, and form a healthy closed loop of new and used vehicle circulation.

During the New Year holiday, multiple brand experience centers in Beijing shopping malls welcomed visitors. The prominent red “final offers” on sales brochures were strikingly noticeable. However, the disparity in foot traffic between different brand stores already signals the onset of a profound market “reshuffle.” Even with annual sales of 300,000–400,000 units in 2025, it does not necessarily guarantee a stable market performance this year.

Fluctuations in sales figures are merely superficial. In 2026, automakers will face greater tests of refined operations. The road ahead includes not just broad avenues but also narrow alleys—when a direct turn isn't possible, sometimes you need to “reverse and try again!”