Hello everyone, I'm your financial observer. Today, we're going to discuss a series of important insights about the future direction of China's automotive industry, presented by industry giant Zhang Yongwei at the Chebaihui Annual Conference.
If we compare China's automotive industry to a growing child, it's currently at a critical crossroads of adolescence: the reckless growth of the past has ended. Now, the question is whether it will focus on strengthening its internal capabilities or engage in direct competition. Should companies band together for mutual support, or will survival of the fittest be the rule?
This article contains a lot of information, so I've broken it down into four key points to explain in simple terms.
1. Major Industry Reorganization: Don't Rely on the Government for Support; Those Who Should Go, Must Go
In the past, people thought that as long as car companies made a splash or the local government saw them as a valuable asset, they would survive. However, Zhang Yongwei made it clear that the days of relying on government subsidies to stay afloat are over.
- Reorganization is the New Norm, but the Market Decides: The automotive industry is like a pond where everyone prospers when the water level rises. Now, as the water level drops (during the industry's adjustment period), it's time for reorganization.
- Past Practices: Administrative orders would force companies to merge, often resulting in chaos.
- Current Trend: Take the example of Nezha Automobile, which sought new investors (Zhejiang Taiyi Shenglian) through legal processes rather than government intervention. This is market-driven reorganization. Only companies with the right capabilities, funds, and technology can take over.
- Core Logic: The government can no longer act as a nanny, using taxpayers' money to support companies that are doomed. Those that should fail must fail, and those that should merge must merge—this respects economic principles.
2. The 14th Five-Year Plan Sets New Limits
The new plan from nine departments, including the Ministry of Industry and Information Technology, explicitly restricts the establishment of new independent new energy vehicle companies. This means that entering the automotive industry is no longer just about having money; you need the right capabilities. The state doesn't want to see a proliferation of inefficient, homogeneous small companies. Outdated production capacity must be phased out for the industry's health.
3. Adieu to Rapid Growth: Sales Won't Soar Any Longer; Stability Is Key
Many people still think that as more people buy cars, sales will continue to rise. Zhang Yongwei dampened this optimism:
- Data Doesn't Lie: Growth rates are slowing down.
- 2025: Could be the last year of high growth.
- 2026 and Beyond: The focus will be on stability.
- Real Numbers: In the first eight months of 2026, domestic car sales fell by 3.8%, and new energy vehicle sales dropped by 10.8%. This indicates that people have less disposable income and are more selective when buying cars.
- Where Is the Market’s Ceiling?: Zhang Yongwei estimated that the total Chinese car market will be between 35 and 40 million units.
- 25 Million Units: This is the minimum domestic demand that must be maintained.
- The rest will come from exports and higher-end products.
- Challenge: The market is no longer about increasing demand; there are too many cars, and companies are competing for the same customers.
- How to Maintain These 25 Million Units?: Since we can't rely on people buying cars frantically, companies and the government need to change their strategies:
- Targeting Lower-Rank Markets: First- and second-tier cities are saturated; the focus should be on rural and third-tier cities, where cars don't need to be fancy but must offer excellent value for money and be reliable and easy to charge.
- Solving the Value Loss Issue: People are hesitant to buy electric cars because they fear losing value after two years. If the government and companies establish a reliable used car evaluation system and battery health records, electric car sales will increase.
4. Going Global Is Not About Finding Cheap Opportunities: The Risks Are Greater Than You Think
People used to see Chinese car companies going global as a way to gain a competitive advantage, especially in Southeast Asia and Europe. Zhang Yongwei warns that the waters are deep and becoming increasingly turbulent:
- Impressive Export Figures: In the first eight months of 2026, 6.098 million cars were exported, a 75.7% increase, with new energy vehicles accounting for half. Europe became the largest market.
- Problems: This growth was largely due to price advantages and policy benefits.
- Barriers: Geopolitical tensions and tariffs may increase in the future.
- Non-Tariff Barriers: Some countries require technology transfer or compliance with local standards.
- High-Risk Investments: Investing billions in overseas factories can be risky if local policies change.
- Compliance Is Crucial: Companies must comply with regulations; otherwise, they could face significant penalties or even market exclusion.
5. Addressing the Weakness in After-sales Service
This is a often overlooked but critical issue:
- Europe Is the Toughest Market: Europeans value both the car and the service it receives.
- Chinese car companies have seen rapid growth in Europe, but their after-sales systems are inadequate.
- If they can't provide reliable repairs and support, it will damage their brand reputation.
- The New Challenge of Smart Cars: Smart cars require a new after-sales model, including software training, remote diagnostics, and spare parts.
- Building a strong after-sales network is essential for success in Europe.
Summary: Insights for Consumers and Investors
- For Consumers:
- Don't just focus on price; consider the car's value and after-sales support.
- When buying electric cars, choose brands with a strong presence in rural and third-tier cities.
- The used car market may become more transparent with battery health records, making it a good time to buy used cars.
- For Investors:
- Be cautious of reorganization hype; focus on companies with real technology, cash flow, and market-driven integration.
- Evaluate the value of overseas investments based on local production and compliance.
- Invest in companies with a strong after-sales and service infrastructure, as these will be key in the smart car era.
In summary, China's automotive industry is shifting from a focus on speed to quality, resilience, and compliance. The future winners will be those that can survive the long term, operate legally, and provide excellent services.