The convening of the 2026 Two Sessions has set the overall policy tone for the development of China's automotive industry. In reviewing the achievements of 2025, the Government Work Report highlighted that annual production of new energy vehicles (NEVs) exceeded 16 million units and the number of electric vehicle charging facilities surpassed 20 million, reflecting a dual breakthrough in industrial scale and infrastructure construction.
In outlining the tasks for 2026, the report emphasized measures closely tied to the automotive sector, including boosting consumption, upgrading traditional industries, strengthening research on core technologies, and expanding high-level opening-up. Taken together, these initiatives show that demand-side policy stimulus, market order restructuring under anti‑involution policies, and the iterative advancement of electrification and intelligentization jointly form the core drivers of industry development, laying the foundation for NEVs to continue leading industrial transformation in the year ahead.
The 2026 “Boost Consumption” Policy to Sustain NEV Sales Growth
The 2026 Government Work Report proposes “to promote the expansion and upgrading of goods consumption, 250 billion yuan in ultra-long special treasury bonds will be earmarked for consumer goods trade-in programs, and refinements will be made to the implementation mechanisms for relevant policies.” This measure continues the policy orientation of the 2025 trade‑in program. Although the scale is slightly reduced, the emphasis on optimizing policy implementation mechanisms provides the NEV market with stable policy expectations. CAAM (China Association of Automobile Manufacturers) data show that NEV sales exceeded 16 million units in 2025, up 28.2% year‑on‑year, with a penetration rate of 47.9%; total vehicle sales for 2025 rose 9.4%, above early‑year expectations. According to the Ministry of Commerce, the 2025 trade‑in program drove over RMB 1.6 trillion in new‑car sales, with NEVs accounting for nearly 60% of that amount.
CAAM’s latest forecast projects China’s total vehicle sales in 2026 at about 34.75 million units, a year‑on‑year increase of roughly 1%, while NEV sales are expected to exceed 19 million units, pushing penetration above 50%. Continued policy support has effectively driven the release of market demand, and new energy vehicles are increasingly becoming the core engine for boosting overall automotive consumption and advancing industrial transformation.
Anti‑involution and the Reshaping of Market Order
The 2026 Government Work Report calls for “address monopolies and unfair competition with greater intensity, enhance the binding force of fair competition review, and thoroughly address rat race competition with a full range of approaches…” In 2025 the auto sector’s profit margin was about 4.1%, below the average for industrial enterprises and at a historically low level, indicating clear pressure on industry profitability. Homogeneous capacity and low‑price promotions that emerged during the sector’s rapid expansion not only squeezed margins but also intensified operating pressure across upstream and downstream supply chains, raising systemic credit risk in the industry.
Regulators have already issued multiple measures to normalize market order. In February 2026, the State Administration for Market Regulation released the Automotive Industry Price Behavior Compliance Guidelines to standardize pricing conduct in the sector. In October 2025, the Ministry of Industry and Information Technology and two other departments jointly issued the Announcement on Extending and Optimizing the NEV Vehicle Purchase Tax Exemption Policy, which adjusted technical requirements for pure electric passenger vehicles and plug‑in (including range‑extended) hybrid passenger vehicles, raising technical thresholds to curb low‑quality capacity additions and guide the industry toward higher‑quality development.
It is expected that under the “anti‑involution” policy orientation in 2026, predatory price competition will be effectively curbed. However, slowing demand growth, fluctuations in raw material costs, and the continued pressure of high R&D investment may offset part of the policy effect, leaving profit margins in the automotive sector lingering at low levels.
On the other hand, overseas expansion has become an important trend for Chinese automakers, evolving from vehicle exports to the extension of technology, standards, and supply chain deployment. Against the backdrop of intensifying domestic competition, this provides OEMs with new opportunities to tap external markets and diversify risks. In 2025, China’s NEV exports grew by more than 100% year‑on‑year, reaching approximately 2.6 million units. In the first two months of 2026, the strong growth momentum continued, with NEV exports reaching approximately 583,000 units, representing a year‑on‑year increase of 1.1 times. Meanwhile, leading OEMs such as BYD, Changan, XPeng, and Chery have established or commenced production at plants in Thailand, Indonesia, Brazil, and Europe, signaling a strategic shift from pure product exports to localized manufacturing and the export of technical standards.
Besides, the reshaping of market order will accelerate industry polarization: leading firms with leveraging scale, technology and channel advantages, will gain stronger bargaining power and margins and further expand market share in a more regulated competitive environment; smaller and medium‑sized enterprises that fail to secure differentiated positions in niche markets or along distinct technological paths will face substantial survival pressure. Some OEMs may undergo mergers and acquisitions, or market exit as a means of resource reallocation, while upstream and downstream segments of the supply chain are likely to achieve synergies through integration and equity participation. As a result, overall industry concentration is expected to rise further.
Electrification Iteration and Intelligentization as Dual Drivers of Growth
During the 2026 Two Sessions, numerous deputies and members from the automotive sector put forward proposals on the development of new energy vehicles, with intelligentization and autonomous driving emerging as core themes. As a vital component of the artificial intelligence industry, the automotive sector is poised to maintain its robust growth momentum with policy support. The commercialization of high-level intelligent driving is expected to accelerate, enhancing the technological attributes of the industry and injecting new momentum into its sustainable development.
The 2026 Government Work Report explicitly calls for “advance and expand the AI Plus Initiative”. With the deep integration of artificial intelligence and the automotive industry, the “intelligent” manufacturing of NEVs is set to receive greater policy support, providing strong impetus for industrial transformation and upgrading. Meanwhile, the commercialization of high-level intelligent driving imposes higher requirements on computing power and energy consumption. Promoting new infrastructure such as "hyper-scale intelligent computing clusters" and "coordinated development of computing capacity and electricity supply" will become essential support. It also intensifies cross-border competition in the NEV sector, exposing existing enterprises in the industry to multi-dimensional challenges from tech giants and chip manufacturers.
In addition, with the accelerated commercialization of high‑level autonomous driving, demand for high computing power is expected to grow exponentially. Although the localization rate of NEV chips has been rising year by year, the industry as a whole remains in a technological catch‑up phase, with certain critical segments still heavily reliant on imports. Against the backdrop of geopolitical tensions and global supply chain volatility, this reliance may become a potential disruptive factor for industry development.
On the other hand, the pace of electrification in the industry continues to deepen. Taking power batteries as an example, the sector is advancing toward next‑generation technologies, achieving simultaneous breakthroughs in charging speed, energy density, and low‑temperature adaptability. In early March 2026, Qingtao Energy in Taizhou, Zhejiang announced the commissioning of Phase I of its solid‑state battery project with a capacity of 3.5 GWh. Under normal temperature conditions, the battery can be charged from 10% to 70% in just five minutes, while at –30°C the charging time is only three minutes longer. This technological advancement is expected to materially enhance user experience.
The demand side remains the core bottleneck constraining the further popularization of electrification and intelligentization. Automobiles, as major big-ticket items, are facing incremental pressure in the domestic new‑car market as NEV registered numbers continue to rise. At the same time, purchasing decisions are becoming increasingly rational. Meanwhile, consumer awareness, acceptance, and willingness to pay for advanced autonomous driving functions remain at an early stage of cultivation. As a result, the commercialization and market penetration of these technologies will still require time to be validated.
Looking ahead, companies that can establish synergistic advantages across battery technology, intelligent driving systems, and energy‑supplement infrastructure will be better positioned to secure stable cash flows and capture profitability premiums in the marketization process.
Note: This report is translated from the Chinese version. In case of any discrepancies, the Chinese version shall prevail.
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