Chinese EV Stocks Face Profit Collapse As 2026 Subsidy Cliff Looms

We’ve been warning for months that China’s EV “miracle” was built on unsustainable foundations. This week, Bloomberg delivered the receipts.

Chinese EV stocks are in freefall after a brutal Q3 earnings season exposed what we’ve been documenting all year: the growth-at-all-costs era is ending, and the bill is coming due. Investors who bet on endless expansion are now staring at BYD’s 33% profit collapse, Xpeng’s 10% stock crash, and an industry-wide scramble to survive what comes next.

The immediate catalyst? Disappointing earnings that shattered expectations. But the real story runs deeper. With China’s full EV purchase tax exemption ending on December 31, 2025, the industry faces a policy cliff that could reshape the entire sector.

BYD’s Worst Quarter In Four Years

The numbers from BYD tell the story of an industry cannibalizing itself. Net profit plunged to RMB 7.82 billion ($1.1 billion), marking the company’s second consecutive quarter of year-over-year declines.

More alarming: revenue fell 3.05% to RMB 195 billion, BYD’s first quarterly revenue decline in years. Even the world’s largest EV maker cannot escape the gravity of a saturated domestic market.

“We expect the demand environment in 1Q 2026 to be challenging,” said Bing Yuan, a fund manager at Edmond de Rothschild Asset Management. “Competition may intensify, hurting margins into next year.”

The price war that BYD itself ignited has become a death spiral. In May, the company slashed prices by up to 34% on 22 models, triggering industry-wide margin compression that benefits nobody except bargain-hunting consumers.

The 2026 Subsidy Cliff

Here’s what’s driving the panic: Starting January 1, 2026, China’s NEV purchase tax exemption gets cut in half.

Currently, qualifying EV buyers enjoy a tax waiver worth up to 30,000 yuan ($4,200). That drops to a maximum 15,000 yuan ($2,100) deduction in 2026. By 2028, the exemption disappears entirely.

The timing could not be worse. Bloomberg Intelligence estimates China’s NEV growth will slow from 27% this year to just 13% in 2026. Analysts had projected a year-end delivery bump as buyers rushed to beat the deadline. Instead, they’re seeing something more troubling: companies scrambling to cover the tax gap themselves.

Geely launched a rebate of up to 15,000 yuan in early November to offset the smaller tax break. Xiaomi, Li Auto, and others followed with similar offers. This is manufacturers eating their own margins to maintain volume, a strategy that cannot last.

Xpeng’s Stock Crash Reveals Deeper Concerns

Xpeng delivered what should have been a triumphant quarter. Vehicle deliveries surged 149% year-over-year to 116,007 units. Net loss narrowed to just RMB 380 million, its smallest since 2020. Gross margin crossed 20% for the first time.

The stock crashed 10% anyway.

Why? Fourth-quarter revenue guidance came in at RMB 21.5 to 23 billion, roughly RMB 3 billion below analyst expectations. In China’s hypercompetitive EV market, even record results cannot mask weakening momentum.

“Traders quickly turned against the best-performing stocks as results fell short,” Bloomberg reported. Xpeng shares dropped 10% in Hong Kong the day after reporting continued losses and weak guidance.

The Pivot to Robots Tells You Everything

Here’s the detail that reveals where Chinese EV makers think the future lies: they’re betting on humanoid robots.

Xpeng plans to mass-produce humanoid robots by the end of 2026. Li Auto’s CEO called the company’s eventual entry into humanoid robots “definitely 100% in probability.” These aren’t side projects. They’re hedges against a domestic EV market that’s running out of room to grow.

When your core business faces slowing growth, margin compression, and subsidy cliffs, you pivot. The pivot to “embodied AI” signals that even Chinese EV giants see limits to EV growth at home.

Winners and Losers in a Shrinking Market

Not every company is struggling equally. Leapmotor posted its second consecutive profitable quarter, with net income of RMB 150 million and gross margin climbing to 14.5%. The company hit its 500,000-unit annual sales target six weeks early.

But even Leapmotor’s stock dropped 4.65% after earnings. Bloomberg reported its profit came in at less than 65% of analyst estimates despite sales nearly doubling.

The pattern is clear. Lower-priced manufacturers like Leapmotor and Geely are better positioned for a “downgrading trend” where buyers shift from premium to mass-market vehicles. Premium players face the squeeze.

“We continue to see a clear downgrading trend,” said Xiao Feng, co-head of China industrial research at CLSA Hong Kong. “Buyers who once chose mid- to high-end models now shifting toward mass-market cars.”

The Overseas Escape Hatch

Chinese EV makers are racing to escape domestic saturation through international expansion. BYD’s overseas sales more than doubled in Q3, reaching 701,600 units through September. Geely expects sales outside China to surge 80% next year.

The strategy makes sense. European and Latin American markets offer higher prices and less cutthroat competition. But tariffs, trade tensions, and localization requirements create their own challenges.

BYD is building factories in Hungary, Turkey, and potentially Spain specifically to neutralize EU tariffs. This “localization” strategy transforms the company from a Chinese importer into a European manufacturer, a multi-year chess move we’ve been tracking closely.

EVXL’s Take

This earnings season confirms what we’ve been warning about since covering China’s fake sales scandal and the AlixPartners prediction that only 15 of 129 Chinese EV brands will survive to 2030.

The numbers don’t lie. BYD’s 33% profit collapse, Xpeng’s stock crash despite record deliveries, and the industry-wide scramble to cover vanishing tax benefits all point to the same conclusion: China’s $230 billion subsidy-fueled EV “miracle” is entering a new, much harsher phase.

The winners will be companies with genuine cost advantages, strong overseas channels, and the discipline to avoid margin-destroying price wars. The losers? Everyone else, and there are roughly 114 brands that won’t make it to 2030.

For Western automakers watching Chinese EV dominance with fear, this quarter should offer perspective. China created massive overcapacity through state intervention that’s now collapsing under its own weight. Even BYD’s own executive called the price war “unsustainable.”

The pivot to humanoid robots and “embodied AI” tells you everything about where Chinese EV makers see their domestic ceiling. When you’re betting your future on walking robots instead of driving cars, you’re acknowledging the easy growth is over.

The coming 12 months will be brutal. Government subsidies are waning. Competition remains fierce. Margins are evaporating. But for consumers? There’s never been a better time to buy a Chinese EV.

What do you think? Share your thoughts in the comments below.