China’s expiring cash subsidies and tax incentives for new electric vehicles (NEV) is expected to contribute to the first constriction in the domestic automotive industry since 2020. As domestic demand weakens, 50 companies deemed unprofitable are now under pressure to either reduce the scale of their business or face bankruptcy.
Even if manufacturers were to offer heavy discounts to attract buyers, their situation will not improve if they cannot attract the younger consumers who may have concerns beyond prices. In fact, some EV makers are now seeing the young consumer market as a key segment to their continued survival. In addition, the issues of overcapacity and reduced government support might not be mitigated with discounts. In December 2025, new EVs (NEV) accounted for roughly 60% of the new passenger cars sold in China and as the market consolidates, certain growth promoting subsidies will be reduced.
At the moment, buyers of new EVs enjoy a number of benefits, such as a 10% purchase tax exemption and a 20,000 yuan (approximately £2,100) subsidy for trade-ins. However, the trade-in subsidy is now facing an existential uncertainty as the central government will announce in January 2026 whether it will continue. In addition, January 2026 will also see the removal of the tax exemption as NEV buyers will face a 5% purchase tax which will be increased gradually to the regular 10% by 2028.
Chinese EV makers are expected to persist in providing heavy discounts or other benefits for their buyers as their performance in 2026 will determine their survival in the highly competitive market. Analysts currently predict the ongoing price war between brands will persist in the foreseeable future.
To circumvent the market slowdown, Chinese EV makers are now looking to expand their market overseas where the profit margin can be higher. For example, Geely stated that its EV exports have quadrupled, delivering 184,000 units in H1 2025. The company has entered Australia, Vietnam, and 4 new markets, bringing its reach to a total of 90 countries. BYD has expanded its production by opening a factory in Hungary which is expected to begin production in 2026. In terms of exports, BYD has reported a delivery of over 131,000 units in November 2025 alone.
The 2026 sales competition might be a survival test for many EV makers as market consolidation seems to be inevitable. However, the highly dynamic market may see changes as companies shift focus to international sales and beyond their slowly oversaturating domestic opportunities.
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