A few years back, the debate raged on about when new energy vehicles (NEVs) would overtake their fuel-powered counterparts, with no clear consensus. Today, that debate has reached its conclusion.

The recently released 15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry, crafted by nine key departments including the Ministry of Industry and Information Technology, outlines a vision where, by 2030, China's intelligent connected NEV sector will solidify its global leadership across the entire supply chain. Domestically, NEVs are projected to capture 70% and 40% of the new passenger and commercial vehicle markets, respectively, with autonomous driving technologies becoming mainstream.

Once a technology's penetration rate is enshrined in a national strategic blueprint, 'trends' metamorphose into 'countdowns.' Over the next half-decade, the entire industry will accelerate, prompting the question: which players will falter in this restructuring?

The Gamble Table Tightens: Accelerated M&A Activity, the 'Final Five Years' for Small and Medium-Sized Automakers

If 'expansion' was the industry's mantra for the past five years, 'consolidation' now takes center stage.

In recent times, a diverse array of capital, including new automotive entrants, cross-industry players, traditional automakers' spin-offs, and local state-owned enterprises, have flocked to the automotive sector, vying for market share. According to Tianyancha Professional Edition, China now boasts over 1.727 million active automotive production and sales enterprises, with over 325,000 new registrations in 2025 alone, underscoring a rising trend.

Beneath this surge lie two pressing challenges.

Firstly, R&D resources are fragmented. Numerous small and medium-sized brands grapple with severe product homogenization, resorting to price wars for survival. Secondly, profit margins are continually squeezed. Relentless price battles have eroded industry-wide profitability, leaving many automakers in a predicament where 'selling cars no longer guarantees profits.'

More critically, with meager per-vehicle profits insufficient to cover basic operations, companies lack the surplus funds for next-generation technology R&D. Investments in high-level autonomous driving, in-vehicle AI models, and next-gen batteries demand billions, with no clear short-term ROI—an insurmountable hurdle for smaller automakers.

The plan's solution is clear-cut: let market forces drive consolidation.

Firstly, 'intensify efforts to encourage M&A and cross-regional integration of automotive enterprises in accordance with the law,' enabling leading companies to absorb the capacity and qualifications of smaller players.

Secondly, 'deepen reforms for group-based management of automotive production enterprises,' accelerating internal resource integration within large automotive groups to enhance overall efficiency.

Thirdly, 'promote the orderly exit of outdated and inefficient production capacities through market-oriented and law-based means,' phasing out companies with prolonged losses and obsolete technology.

Fourthly, 'strengthen early warning and regulatory management of power battery production capacities,' extending macro-control to upstream key component expansion to prevent redundant construction.

Once these measures are implemented, the industry landscape will undergo a seismic shift.

Over the next five years, brands lacking core technologies, relying solely on price wars, and without stable cash flows will be weeded out. Leading enterprises with full-chain integration capabilities will amplify their advantages through M&A, transforming the industry from a 'diverse bloom' to a 'strong get stronger' scenario.

The next five years mark the 'final countdown' for small and medium-sized automakers—either find a compelling reason to survive or face elimination.

AI Integration: From 'Horsepower Race' to 'Computing Power Race'

If M&A activity determines 'who stays,' AI dictates 'why the survivors thrive.'

The plan emphasizes strengthening foundational AI capabilities, fostering innovations in AI models and intelligent agents, and prioritizing their automotive applications. It accelerates the construction of AI application pilot bases in the automotive sector and encourages industry enterprises to build intelligent computing facilities through a blend of public and private resources.

In practice, this translates into three industry restructuring trends:

Product definitions have evolved from mechanical transportation tools to mobile intelligent terminals. Traditionally, a car's quality was judged by power, fuel efficiency, handling, space, and reliability. With AI, automotive product boundaries have expanded.

As AI capabilities advance, in-vehicle AI is no longer confined to basic functions like voice assistants, navigation, or entertainment. It now encompasses driving assistance, cabin interaction, vehicle control, scenario-based services, personalized learning, and continuous evolution. Cars are no longer static mechanical devices at manufacture but mobile intelligent terminals capable of self-learning, autonomous communication, and ongoing improvement.

In the future, companies that transform cars into intelligent, thinking, evolving, and service-oriented products will set the product standards for the next era.

Value distribution has shifted from engines and transmissions to chips, operating systems, and cloud computing capabilities.

In the fuel vehicle era, the automotive industry's value chain revolved around engines, transmissions, chassis, bodywork, and the production system, where mechanical efficiency determined product competitiveness. In the AI-driven automotive era, the focus has shifted entirely to intelligent hardware and software systems, including chips, operating systems, sensing hardware, and cloud computing power.

In essence, the automotive industry's profit pool has moved from 'mechanical components' to 'intelligent cores.' If automakers still view AI as merely an additional spec sheet feature, they underestimate the magnitude of this transformation.

The competitive threshold has also changed, with the primary competitive factor shifting from 'production capacity' to 'iteration capacity.'

Previously, automotive competition centered on manufacturing capabilities. Factors like factory size, supply chain integration, quality management, cost control, and distribution capabilities determined an automaker's success.

Today, competition has transitioned from static manufacturing to dynamic iteration capabilities. The ability to iterate algorithms, close data loops, and develop intelligent scenarios has become a crucial differentiator. This means competition is no longer just about 'the moment of delivery' but about sustained competition 'after delivery.'

In summary, the shift from horsepower to computing power competition represents more than just a change in key automotive parameters; it signifies a comprehensive transformation in the industry's underlying logic, value system, and competitive landscape.

The 30% Remnant: Fuel Vehicles Are Not 'Eliminated' but 'Repriced'

According to industry plans, NEVs are set to capture 70% of the market, with fuel vehicles' sales share contracting to the remaining 30%.

Market data confirms this inflection point. According to People's Daily, after NEVs' monthly retail penetration rate exceeded 50% by the end of 2025, it remained stably above 60% from April to July 2026, reaching 65.1% in July.

However, this does not spell the complete exit of fuel vehicles by 2030. The plan's targets apply to 'new vehicle sales' and do not involve mandatory phase-outs of existing fuel vehicles. During this period, fuel vehicles can still be used, inspected, and traded normally—there will be no blanket removal of all old vehicles.

Under these circumstances, the fuel vehicle market will undergo significant changes.

Automakers, led by BYD, have begun adjusting their strategies by substantially reducing R&D budgets for traditional fuel vehicle models, scaling back production capacities, streamlining product lines, and no longer focusing on family fuel vehicles as their primary growth area. Ordinary family fuel vehicles for daily commuting will gradually phase out.

However, fuel vehicles are not entirely obsolete. In sectors like long-distance heavy-duty transportation, professional off-roading, engineering construction, and special transportation, fuel vehicles' advantages—including power stability, convenient energy replenishment, worry-free range, and adaptability to harsh conditions—remain unmatched by NEVs.

For consumers, the residual value of fuel vehicles will enter a prolonged decline, with resale values continuously decreasing and the value of used fuel vehicles in circulation gradually diminishing. Meanwhile, reduced infrastructure will lead to increased usage costs, shifting fuel vehicles from a mainstream option to a niche choice.

For traditional automakers, fuel vehicle businesses were once the primary growth drivers, revenue sources, and profit contributors, supporting the entire enterprise. In the new phase of transition from fuel to electric vehicles, the greatest challenge for automakers is balancing the cash flow from fuel vehicle businesses with the substantial R&D investments required for NEV and intelligent technologies.

Summary

The true signal from this plan is that China's automotive industry has shifted from a phase of pursuing scale expansion to a governance stage focused on high-quality development. The 70% and 40% targets serve as benchmarks, with M&A and production capacity early warnings acting as precise regulatory tools. 'Artificial Intelligence + Automobiles' is set as the new engine for the next stage.

For automotive companies, the era of easily making profits by riding market trends is over. Strategies relying on business cycle bets, subsidies, or a single hit product are no longer viable. The real test lies in transforming technology from simple 'assembly' to deeply rooted 'capabilities' and extending delivery from a one-time transaction to a sustained, long-term relationship with users.

At the high-stakes table of inventory competition, the key is to convert the 'scale dividends' enjoyed over the past decade into 'value dividends' capable of sustaining the next decade.