Summary:
Nomura expects China EV demand to cool further in 2026
New subsidy policy signals tighter support for auto sector
Mass-market models seen most vulnerable to demand slowdown
EV makers likely to prioritise upgrades over price cuts
Technology leaders expected to outperform
China’s electric-vehicle market is likely to face further demand cooling this year as policy support is gradually tightened, according to Nomura, adding to pressure on manufacturers already grappling with slowing growth and intense competition.
Nomura analysts said a newly released auto subsidy framework at the end of 2025 points to a less accommodative policy stance toward the sector, marking a shift away from the aggressive support that helped drive rapid EV adoption in recent years. The changes are expected to weigh most heavily on near-term domestic demand, particularly for mass-market and entry-level models that have relied heavily on price incentives to sustain sales momentum.
As subsidies become more selective, Nomura expects Chinese EV makers to adjust strategy, pivoting away from widespread price cuts toward accelerated product upgrades and technology differentiation. The bank argued that further discounting would risk eroding margins without delivering meaningful volume gains in a more policy-constrained environment.
The outlook underscores a broader transition in China’s auto sector, where growth is increasingly driven by innovation rather than price competition. Nomura expects manufacturers with strong capabilities in battery efficiency, software integration and advanced driver-assistance systems to outperform peers, even as overall market growth moderates.
Policy tightening comes at a time when China’s EV market is already showing signs of saturation in major urban centres, while demand in lower-tier cities remains more sensitive to affordability and incentives. As a result, the bank sees downside risks to unit sales in the near term, especially for brands positioned primarily on cost rather than technology.
Nomura maintained a cautious stance on the broader auto sector, noting that the shift in policy signals a desire by authorities to encourage higher-quality growth and reduce reliance on subsidies. While this may support the industry’s long-term health, it raises the bar for manufacturers in the short run.
Taken together, the analysts said the combination of policy tightening, slowing demand growth and intense competition suggests a more challenging environment for China’s EV makers in 2026. Companies that can successfully execute technology upgrades and differentiate their product offerings are expected to emerge as relative winners, while those reliant on price-led strategies face mounting pressure.
