Not only did Tesla see its sales drop by 7.4 percent from a year ago, but market leader BYD also reported a 5.1 percent decline, according to data from the China Passenger Car Association covering January through November. When even BYD is declining, the party is definitively over. BYD's passenger car sales in November alone fell by an even steeper 26.5 percent from a year ago, while newer rivals, including vehicles powered by Huawei software and models from Xiaomi, recorded sales growth of more than 90 percent during the same period.
The market isn't shrinking. It's consolidating violently. Market concentration has increased sharply. The top ten manufacturers now account for around 95 percent of the Chinese new energy vehicle market, up sharply from around 60 to 70 percent just two or three years ago. That's not gradual evolution. That's massacre disguised as market dynamics.
The Profitability Crisis Nobody Talks About
In 2024, only a handful of firms achieved profitability: BYD reported a 6.4 percent operating margin, Tesla 7.2 percent including its Shanghai operations, and Li Auto maintained positive earnings though its vehicle margin slipped to 19.7 percent in Q4 from 22.7 percent prior. Three companies. Out of over 130 still operating. Even successful companies like XPeng and NIO have yet to achieve consistent profitability, raising questions about long term sustainability.
The math is brutal. BYD sells millions of vehicles annually and makes 6.4 percent margin. Everyone else either loses money or barely breaks even while burning through investor cash. Startups like NIO and XPeng continued burning cash, with widened supplier payment terms averaging 10 months. They're not paying suppliers for nearly a year because they can't afford to.
The 2026 Reckoning
About 50 unprofitable mainland Chinese EV makers are under pressure to scale down their business or wind down operations, as the country's automotive sector is projected to report a sales drop next year, the first such contraction since 2020. The SCMP reports that around 50 of China's money losing EV makers may be forced to either downsize or shut down entirely in 2026.
Much hinges on an upcoming policy decision. In January, Beijing is expected to determine whether the 20,000 yuan, roughly $2,900, EV trade in subsidy will be extended. Meanwhile, the current 10 percent purchase tax exemption is set to expire at the end of this year. A reduced 5 percent rate will apply starting in January and remain in place until the full tax returns in 2028. Government support that kept dozens of unprofitable brands alive is vanishing. The companies that survived on subsidy oxygen are about to find out what happens when someone unplugs the machine.
The Bodies Are Already Piling Up
HiPhi, Human Horizons, production halted in 2024 due to funding and operational issues. WM Motor filed for bankruptcy after failing to raise fresh capital and losing investor confidence. Hozon New Energy Automobile, parent of the Neta brand, entered bankruptcy restructuring, ceasing operations and leaving owners stranded without maintenance support. The number of domestic EV makers fell from 487 in 2018 to about 130 in 2024. Fewer than 15 brands will survive by 2030, according to a forecast from AlixPartners.
From 487 to 130 to potentially 15. That's 97 percent attrition over twelve years. The Chinese EV boom didn't just create winners. It created a graveyard of failed startups, stranded customers, and unpaid suppliers.
The Winners: Who Survives and Why
BYD remains untouchable despite November's sales decline. BYD Auto leads with 34.1 percent market share, delivering 4.27 million vehicles in 2024, thanks to vertical integration and Blade Battery technology. They build their own batteries, motors, chips, everything. When competitors pay suppliers who won't get paid for ten months, BYD pays itself immediately. That matters more than any technology advantage.
Xiaomi is the story nobody saw coming. Xiaomi's SU7 electric sedan caused a sensation. In February, Xiaomi launched an ultra powerful 1,548 horsepower version called the SU7 Ultra starting at about $72,600. The result: 10,000 pre-orders in two hours. Xiaomi sold 137,000 SU7s last year, more than double Porsche's total full year China sales. A phone company that entered automotive 12 months ago is outselling Porsche. Let that sink in.
Geely survives through diversification. Geely owns brands like Volvo, Polestar, and Lotus. It has used this global footprint to launch its own premium EVs under the Zeekr brand. Geely's SEA, Sustainable Experience Architecture, platform allows it to build a wide range of EVs across multiple brands. This structure supports rapid development and reduces costs. When one brand struggles, three others compensate.
Leapmotor aims absurdly high. Leapmotor is aiming to deliver 1 million vehicles in 2026. If it achieves this figure, it would be China's third largest EV maker, trailing only BYD and Geely. Through the first 11 months of 2025, Leapmotor delivered 536,132 vehicles. Ambitious but backed by Stellantis partnership providing overseas distribution.
XPeng bets everything on AI. XPeng has solidified its position as the leader in AI centric mobility. Its 2025 lineup shifted fully to AI defined vehicles, including the vision based P7 plus and the X9 MPV with adaptive AI suspension. The company's partnership with Volkswagen brought major scale advantages, culminating in the VW ID. UNYX 07, powered entirely by XPeng's software and its in house Turing AI chip. If autonomous driving matters, XPeng survives. If it doesn't, they're in trouble.
The Losers: Death by a Thousand Price Cuts
Xpeng shares dropped 10 percent in Hong Kong the day after it reported continued losses and issued weak guidance. Zhejiang Leapmotor Technology Co. touched its lowest level since April after its profit came in at less than 65 percent of the analyst estimate even as sales nearly doubled. Growing sales while losing more money isn't success. It's accelerated failure.
Li Auto Inc. and Nio Inc. were among others issuing fourth quarter revenue and vehicle delivery forecasts that missed market expectations. The outlooks suggest sluggish consumer demand in what is a critical period for automakers striving to hit annual sales targets. NIO and Li Auto, the original EV startup success stories, are missing forecasts and burning cash. The early trio of U.S. listed Chinese electric car startups, Nio, Xpeng and Li Auto, failed to make the top 10 sellers for the month.
The brands that won venture capital funding five years ago are now irrelevant in their home market. New entrants like Xiaomi and Huawei backed brands took their market share while they were busy explaining quarterly losses to investors.
Government Support Evaporates
China's EV boom was propelled by massive state support, with estimates placing financial assistance at over $230 billion from 2009 to 2023, dwarfing subsidies in other nations. That tap is turning off. Beijing is set to re impose a purchase tax while scaling back trade in purchase subsidies. UBS predicts the growth rate of China's electric car sales to roughly halve next year from around 20 percent in 2025.
The market doesn't need subsidies anymore in terms of total adoption. The market is already saturated, with new energy vehicles accounting for 59.4 percent of new passenger cars sold in China in November. But individual companies absolutely need subsidies to survive price wars. Without government support cushioning losses, weak players fold immediately.
Tariffs Force Overseas Expansion
In October 2024, the European Union imposed countervailing duties on Chinese battery electric vehicles, adding OEM specific tariffs atop a 10 percent standard rate: 17 percent for BYD, 18.8 percent for Geely, and 35.3 percent for SAIC, reaching up to 45.3 percent in some cases. The United States maintained high effective barriers through existing Section 301 tariffs, escalating to 82.4 percent on Chinese LFP cells by 2026.
Response? Build factories overseas. To circumvent barriers, Chinese automakers accelerated overseas manufacturing investments, surpassing domestic EV plant announcements for the first time in 2025. Localization rates in Southeast Asia currently stand at 30 to 40 percent, expected to exceed 50 percent by 2026. As a result, costs for BYD and other Chinese automakers could fall by around 10 percent, improving profit margins by roughly 15 percentage points.
But international expansion requires capital. Neta's struggles in Thailand show the risks of growing too fast without support networks or stable finances as China's EV startups expand overseas. Companies that can't survive domestically definitely can't afford building international operations. The brands expanding overseas are the winners. Everyone else is just trying not to die at home.
What 2026 Actually Looks Like
Time is against those players whose cars cannot impress young drivers. Performance next year will be crucial for most of the unprofitable EV assemblers. Translation: sell compelling products at profitable prices or disappear. Most can't do both simultaneously.
The consolidation has three forms. Outright bankruptcy like HiPhi and WM Motor. Mergers where struggling brands get absorbed by larger players. And zombie companies that stop producing but haven't officially died yet, leaving customers with unsupported vehicles.
BYD, the market leader, has warned that up to 100 automakers could fold in the coming months as the price war ends and weaker players succumb. When the market leader publicly predicts 100 competitors will die, believe them. They have better intelligence on everyone else's financials than anyone admits.
The Verdict
The Chinese EV juggernaut continues but with 90 percent fewer participants. BYD dominates. Xiaomi disrupts. Geely diversifies. XPeng gambles on autonomy. Everyone else fights for scraps or dies trying. Chinese EV companies now account for 43 percent of global EV sales, with eight of the top ten best selling EV models coming from China. China won the EV race globally. It just killed most of its own participants getting there.
The fifty brands facing closure in 2026 aren't failures of technology or execution. They're casualties of a market that moved from subsidy driven growth to profitability driven consolidation before they could establish sustainable business models. Government support created 500 EV companies. Market forces will leave 15. The 485 difference represents the most expensive industrial policy experiment in automotive history. China gets electric vehicle dominance. The price tag is measured in hundreds of billions of subsidies and hundreds of failed companies. Whether that was worth it depends entirely on who you ask. The survivors will say yes. The bankrupt founders might disagree.