China’s new energy vehicle industry has been rapidly expanding with official subsidies and policy support for many years. However, the latest financial reports reveal that the industry is now entering a period of “peak reversal,” facing challenges such as overcapacity, weakening demand, deteriorating price wars, and massive losses, signaling a crisis on multiple fronts.
Experts warn that without technological breakthroughs to overcome the “policy aftermath” issues, the industry risks falling into a situation of long-term losses and structural imbalance similar to the steel industry.
In the third quarter of 2025, the financial reports of major Chinese electric vehicle companies showed significant pressure across the board.
According to financial data, BYD’s third-quarter revenue dropped by 3.05% year-on-year to 195 billion RMB, with net profit plunging to 7.82 billion, a 32.6% decline, indicating a noticeable slowdown in its high-growth phase.
XPeng saw a sharp decline in delivery volume by 39%, a 37.4% decrease in revenue, and a shift from a profit of 2.8 billion RMB in the same period last year to a loss of 620 million RMB, marking a significant deterioration. NIO and Xiaopeng recorded losses of 3.7 billion RMB and 380 million RMB, respectively. Although Li Auto doubled its sales volume, profits were 65% lower than expected, reflecting the industry norm that “increased sales do not necessarily mean profits.”
Chairman of Caixin Media Xie Jinhe pointed out that the third-quarter reports of 2025 have basically concluded, with BYD’s net profit declining nearly 33% year-on-year and even the formerly profitable Li Auto experiencing losses. With a decline in delivery volume, it appears that they are starting to descend from their peak.
Starting from the third quarter of 2025, Chinese local governments have gradually stopped some vehicle purchase subsidies, leading to a renewed decline in demand. XPeng’s stock price fell by 10% due to continued losses, while Li Auto, despite an increase in sales volume, suffered profits well below expectations, raising concerns about the trend of “selling more but losing more” in the market.
Some automakers have introduced their own subsidies to maintain sales, with Geely offering discounts of up to 15,000 RMB, while XPeng and Xiaomi implemented a similar strategy.
However, with the pressure of rising battery costs and accumulating discounts, Daisy Li, a fund manager at EFG Asset Management, told Bloomberg that company gross profit margins will continue to face headwinds, as even with official emphasis on “inward consolidation,” price wars cannot be halted.
Financial columnist Gao Tianyou analyzed that the Chinese electric vehicle market has become a typical “Red Sea market.” Li Auto, by refusing to engage in price wars, raised its average car price in the third quarter to 278,000 RMB, sacrificing sales volume and turning into losses. NIO opted for “volume over price,” reducing its average selling price from 270,000 RMB to 220,000 RMB compared to the same period last year, resulting in a 41% increase in delivery volume but remaining deeply mired in losses.
He pointed out that frontline giants like BYD, Li Auto, and NIO have shown relatively strong operational performance. Many second and third-tier car manufacturers, in a bid for survival, resort to more aggressive price cuts, dragging the overall market “deeper into the abyss.”
Sun Guoxiang believes that the long-term prospects for China’s electric vehicle industry lie in breakthroughs in next-generation technologies; otherwise, it may repeat the fate of industries like steel and solar panels, falling into a cycle of long-term low profits, or even losses and structural imbalance.
According to Bloomberg, Bing Yuan, a fund manager at Edmond de Rothschild Asset Management, expressed that the first quarter of 2026 will be exceptionally challenging. The termination of car replacement subsidies and tax exemptions for electric vehicle purchases will further weaken demand in the Chinese electric vehicle market.
Bloomberg estimates that the sales growth of new energy vehicles in China in 2026 will drop sharply from 27% to 13%.
Economic commentator Sun Guoxiang told Da Ji Yuan that China’s new energy vehicles face not just cyclical economic issues but structural problems.
Data from the Chinese Ministry of Industry and Information Technology shows that China’s new energy vehicle production capacity has exceeded 20 million vehicles, but the sales in 2024 were only 12.89 million, leaving nearly 40% of the capacity idle. The utilization rate is only about 60%, far below the healthy level of 85%.
He analyzed that on the demand side, the domestic market is saturated, coupled with declining incomes and insufficient consumer confidence to absorb the massive production capacity spurred by years of subsidies. On the supply side, prolonged price wars have led most car manufacturers into the cycle of “selling more but losing more.”
Sun further noted that exports, once seen as a safety valve for China’s electric vehicles, now face significant challenges due to anti-subsidy investigations and rising tariffs in Europe and America, complicating the situation.
In the U.S., Chinese electric vehicles and hybrid cars face a 100% tariff, while the EU imposes varying tariffs between 17% and 38% on Chinese electric vehicles from different manufacturers. Although hybrid cars are not subject to EU taxation, industry insiders note that this distortion where “more polluting vehicles are more profitable” remains under regulatory scrutiny.
A prominent online financial commentator interviewed by Da Ji Yuan stated that China’s new energy vehicles have reached the limits of excessive expansion, with “production and capacity too large to be met by the global market.”