The high-octane growth of China’s electric vehicle industry is hurtling toward a significant slowdown as analysts warn that 2026 will be a “do-or-die” year for dozens of manufacturers. For the first time since 2020, the world’s largest automotive market is projected to contract, leaving roughly 50 unprofitable EV makers under immense pressure to scale back or shut down entirely.
This looming “shakeout” is driven by a combination of extreme overcapacity and fading government support. For over a decade, Beijing’s massive subsidies and tax breaks helped birth hundreds of brands, but the era of easy money is ending. Beginning in January 2026, the current 10% purchase tax exemption for new energy vehicles (NEVs) will be halved to 5%, with a cap of 15,000 yuan ($2,100), before returning to the full tax rate in 2028. Additionally, national trade-in schemes that buoyed 2025 sales are set to expire, leading many consumers to pull purchases forward to late 2025 and leaving a demand vacuum for the following year.
Industry experts note that the market has reached a saturation point where “irrational competition”—characterized by relentless price wars—is eroding the profit margins of even the strongest players. Currently, the Chinese auto industry has the capacity to produce over 55 million vehicles annually, nearly double the 27.5 million units sold in 2024. As domestic demand softens, analysts from Deutsche Bank and UBS predict a sales drop of 2% to 5% in 2026. For the “zombie” firms still losing billions each quarter, the lack of fresh fundraising and the cooling interest from local governments mean the end of the road is likely near.
