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.
“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.
Success 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.
Cutthroat 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.
One 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.
BYD 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.
Curated by Dr. Elena Rodriguez
