Summary of Key Points
The Chinese automotive market in the first half of 2026 experienced mixed results: overall sales declined (retail sales of passenger vehicles fell by 20.2% year-on-year), but the penetration rate of new energy vehicles exceeded 60% for three consecutive months. The sales performance of new entrants in the industry varied significantly, with ZeroRun topping the list with 356,000 units sold, breaking the previous dominance of NIO, Li Auto, and Xpeng. However, most companies failed to meet their annual targets, with completion rates below 40%. The competition between pure electric and extended-range vehicles intensified, as policies (such as the abolition of vehicle and vessel tax incentives) favored pure electric vehicles, although some manufacturers continued to offer extended-range models. Rising raw material costs put pressure on companies, which sought to reduce expenses through in-house development and diversifying their supplier base.
In the second half of the year, competition is expected to become even more fierce, with exports becoming a key driver of growth. Nevertheless, it will be difficult for most new entrants to achieve their annual targets.
1. Major Shift in Sales Rankings: ZeroRun Surpasses Traditional Leaders
The previously established dominance of NIO, Li Auto, and Xpeng was disrupted in the first half of the year. ZeroRun outperformed significantly, selling 356,000 units, far exceeding second-place Li Auto (193,000 units), while NIO and Xpeng struggled, with Xpeng only managing to sell 166,000 units, a year-on-year decline of 15.8%.
The situation is even more challenging in terms of target achievement: aside from极氪 (which met its target of over 50%) and NIO (41.9%), most new entrants fell short of 40%. For example, ZeroRun set an ambitious goal of 1 million units for the year but only achieved 35.6%; Aion and AVITA performed even worse, with sales dropping by 53.5% to just 27,600 units.
The threshold for entering the top ten sales rankings also increased, from over 60,000 units last year to 133,000 units, indicating that leading companies are growing larger, while smaller players face greater difficulties.
2. Technological Roadmaps: Pure Electric vs. Extended-Range
In July, the government announced the abolition of vehicle and vessel tax incentives for new energy vehicles starting in 2027. Experts believe this move is aimed at guiding technological development by preventing companies from exploiting extended-range models, which are not considered pure electric due to their internal combustion engines. Pure electric vehicles have seen faster sales growth this year, so it's possible they will account for a larger share of the market after the policy change.
However, companies have different strategies:
- NIO is committed to pure electric vehicles, aiming for a 50% penetration rate by 2030 and focusing on developing its own technology (the Shenji NX9031 chip, which can replace four NVIDIA chips, saving hundreds of millions of dollars).
- Li Auto believes in a balanced approach, offering both extended-range and pure electric models to meet the needs of different customers.
- Xpeng is investing in both types of vehicles, launching an extended-range version and promoting its "dual-energy" capability.
- Other companies like Xiangjie and ZeroRun also offer extended-range and pure electric options.
While policies favor pure electric vehicles, manufacturers are cautious about losing customers due to concerns about battery range. Some consumers prefer extended-range models for flexibility.
3. High Cost Pressures: Rising Raw Material Prices
Chip and lithium carbonate prices have surged this year, with storage chips increasing from $20 to $100 per unit and lithium carbonate from $80,000 to $180,000 per ton. These price increases have raised production costs, prompting companies to adopt cost-cutting measures:
- NIO increased its in-house chip development, saving millions by using the Shenji NX9031 chip.
- ZeroRun optimized its manufacturing process and used a common platform for multiple models to reduce research and development expenses.
- Li Auto diversified its battery suppliers to avoid being dependent on a single supplier.
- Xpeng and AVITA focus on higher-profit models, avoiding low-cost options.
4. Challenging Second Half of the Year
The second half of the year presents greater challenges:
- Sales Pressure: New energy vehicle sales declined by 9% in the first five days of July, indicating continued overall market weakness. To meet targets, ZeroRun needs to sell 107,000 units per month (up from 59,000 in the first half), and Xpeng needs to sell 60,000 units per month (up from 27,000).
- Price Wars Are Losing Effect: Consumers are less interested in price cuts and are looking for advanced features like intelligent driving and reliable battery range. The China Association of Automobile Manufacturers expects fewer promotional activities and emphasizes the importance of safety and intelligence.
- Export Opportunities: Exports accounted for 56.9% of new energy vehicle sales in June, a year-on-year increase of 152.7%. However, competition from companies like Tesla and BYD makes it difficult for all players to gain a share of this market.
In summary, although the new energy market is expanding, not all companies will benefit. To succeed, they must innovate (e.g., in intelligent driving or robotics), scale up their operations (like ZeroRun), or focus on exports. Otherwise, they may be marginalized.
5. Future Trends: Increased Differentiation and Survival of the Fittest
The first half of the year has shown that new entrants are not progressing evenly; instead, the gap between strong and weak companies is widening. ZeroRun has established itself with its large sales volume, while NIO relies on in-house technology and brand recognition. Companies like Xpeng and AVITA are falling behind. In the future, core competitiveness will lie in technology and cost management: either by mastering key technologies (such as chips and batteries), reducing costs, or accurately meeting customer needs. Those companies that lack both technology and scale are likely to be eliminated. As ZeroRun's founder, Zhu Jiangming, stated, "There are currently 17 Chinese automakers; in the future, only the most sustainable ones will survive."
For consumers, buying a car in the second half of the year may be more advantageous as companies may introduce new technologies or improve product features to meet market demands. However, it's important to choose reputable brands with reliable after-sales services to avoid potential issues.