This changing growth curve points to an important trend: upgrading and vehicle replacement are becoming the dominant forces driving demand.
China now has 371 million vehicles on the road, the world’s largest fleet and nearly one-quarter of the global total. Gasoline-powered vehicles account for 86.81 percent of the fleet and are 8.2 years old on average, while many first-generation NEVs are nearing the end of their warranty periods. This is setting the stage for the world’s largest vehicle-replacement cycle, with the 15th Five-Year Plan period becoming a key window for replacement demand and mid- to high-end consumption.
Half-year earnings announcements released in July showed a sharp contrast between weaker profits at some automakers and strong earnings at leading supply-chain companies. This shift in profits should be viewed in the broader context of industrial evolution.
For decades, key auto components and advanced technologies were dominated by overseas companies, with nearly all of the substantial profits they generated flowing abroad. Today, Chinese supply-chain companies increasingly master key technologies through in-house R&D, allowing healthy profits to support long-term investment in frontier technologies.
New trends
Taken together, the new trends emerging in models, sales and profitability in China’s NEV industry in the first half of 2026 offer important insights into where the market is heading.
One conclusion is becoming increasingly clear: China’s auto market is both the world’s largest arena for vehicle replacement and a bellwether for the next round of NEV upgrading and iteration, helping determine the cycle and pace of transformation across the global auto industry.
Unprecedented market potential, rapid innovation and fierce competition are converging in the same market, creating a uniquely powerful draw for global automakers. In an open market, some companies gaining ground while others lose – it is a natural outcome of competition, not a zero-sum game.
“You only get stronger by getting into the thick of competition,” BYD Executive Vice President He Zhiqi wrote recently on social media, capturing a sentiment shared by many Chinese entrepreneurs.
Geely Holding Group founder Li Shufu has said that the auto industry should not fight price wars, but instead compete on technology, services, quality and brands.
Price wars are unsustainable, and destructive “involution” should be avoided. Vigorous competition, however, is what defines a major market.
A growing consensus is taking shape among both Chinese and foreign automakers: competition must shift from price to value and move onto a new track of high-quality development, with companies engaging in healthy competition through diverse technological pathways, stronger core capabilities and continuous improvements in user experience.
