Electric Vehicle Sales Significantly Outperform ICE Vehicles, but Overall Chinese Passenger Car Market Remains Weak

Overview

This report focuses on the performance of China's new energy vehicle market in May 2026, noting that despite continued deepening of electrification trends (EV penetration exceeding 60%), the overall passenger car market remains weak with domestic wholesale sales declining over 20% YoY. Against the backdrop of industry pressure, leading NEV automakers have achieved structural growth through product upgrades and overseas market expansion, while traditional automakers and some new forces face greater pressure.

Core views

The core view of the report is that the market shows significant fragmentation: On one hand, new energy vehicles overall perform far better than ICE vehicles, with May EV penetration expected to reach over 60%, mainly due to technological upgrades (such as ultra-fast charging, intelligent driving chips) and dense new model launches; on the other hand, the Chinese domestic passenger car market continues to be sluggish, with May wholesale sales declining over 20% YoY, with no significant improvement in demand after the Beijing Auto Show. At the company level, BYD sales stopped declining for the first time (flat YoY), mainly driven by overseas sales (+80%), while domestic wholesale still fell 25%; NIO delivered 37,700 units in May (+62.3%), with strong ES9 order momentum; XPENG declined slightly 4.1% YoY, but G6/G9 demand remained stable with Q2 guidance likely to be achieved; Li Auto sales declined 18.4% YoY, with weak L9 Ultra version orders, awaiting June L8 launch and technology conference catalysts.

Analysis framework

The report adopts a 'total volume - structure' dual-layer analytical framework: First assessing the overall market sentiment of China's passenger cars from a macro perspective (based on CPCA preliminary data and industry channel feedback), then focusing on internal structural fragmentation within the NEV sector (EV vs ICE), finally drilling down to individual performance of key automakers (sales breakdown by domestic/overseas, brand matrix, old/new models contribution). Its logical thread is 'under policy vacuum, market drivers shift from policy subsidies to product competitiveness and globalization capabilities', thus placing greater emphasis on companies' technological iteration speed, overseas progress, and niche market positioning capabilities.

Methodology notes

• Supply-Demand FrameworkSupply-demand framework

  Industry analysis centers on supply-side product upgrades (ultra-fast charging, intelligent driving) and demand-side policy vacuum working together

  This framework believes that in the absence of incremental stimulus policies, market performance is primarily driven by supply-side technological progress and product strength enhancement, rather than simple demand-side stimulus; based on this, the report judges that EV's victory over ICE is an endogenous competitiveness manifestation

• Volume-Price DecompositionVolume-price decomposition

  Breaking down automaker sales into domestic wholesale and overseas sales, and further attributing by sub-brands (such as NIO/Onvo/Firefly) or models (ES8/ES9)

  By decomposing sales sources, identifying genuine growth drivers - for example, BYD growth mainly comes from overseas, NIO growth from multi-brand collaboration, thereby avoiding simply attributing total growth to a single factor

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD (1211.HK)

  Benefiting from overseas high growth and blade battery capacity release, one of the few leading automakers achieving YoY stop of decline

  Strengths

  Rising overseas sales proportion, ultra-fast charging and self-developed intelligent driving chips forming differentiated advantages, strong vertical integration capability

  Weaknesses

  Domestic market still under pressure, cumulative sales in first 5 months of 2026 declined 20.5% YoY

  Comparison

  Only automaker among covered companies achieving zero YoY growth in May, and overseas growth (+80%) far ahead of peers

  Risks

  Overseas expansion below expectations, technology platform upgrades driving demand weaker than expected, domestic competition intensifying eroding profit margins

• NIO (NIO.US)

  Multi-brand strategy paying off, strong ES9 orders, becoming short-term sales and sentiment catalyst

  Strengths

  Solid premium brand recognition, battery swap network building barriers, Onvo and Firefly successfully addressing different price segment needs

  Weaknesses

  Single vehicle profitability still under pressure, high capital expenditure, high cost expansion of direct sales channels

  Comparison

  May YoY growth (+62.3%) leading among head new forces, with clear Q2 guidance (110,000–115,000 units)

  Risks

  Production ramp-up behind order growth, new brand market acceptance volatility, long-term battery swap network profitability

• XPENG (XPEV.US)

  G6/G9 series continuing to scale up, technical reputation supporting sales resilience, Q2 guidance achievable

  Strengths

  Clear intelligentization label, leading urban NGP experience, improved cost control capability

  Weaknesses

  Weak brand premium, slow premium breakthrough, relatively conservative overseas expansion pace

  Comparison

  Though May down 4.1% YoY, up 3.7% MoM, and Q2 guidance (100,000–106,000 units) above market expectations

  Risks

  BEV new models (such as G7) launch schedule delay, gross margin recovery below expectations, slow overseas certification progress

• Li Auto (LI.US)

  Extended-range route under pressure, weak L9 Ultra orders, short-term reliance on L8 launch and technology conference catalysts

  Strengths

  Precise family user positioning, high channel efficiency, deep L series reputation accumulation

  Weaknesses

  Technical narrative weaker than pure electric competitors, L9 Ultra version lacks differentiated selling points, slow pure electric transition pace

  Comparison

  Only head new force given 'Neutral' rating, with May sales decline (-18.4%) largest among sample

  Risks

  L8 launch orders below expectations, extended-range market space narrowing, delayed intelligentization progress affecting valuation

Key data

• China May New Energy Vehicle Penetration Rate60%+Expected value, significantly higher than ICE vehicles
• China May Domestic Passenger Car Wholesale Sales YoY Change-20%+Based on CPCA first 24 days data and industry check estimates
• BYD May Total Sales377,000 unitsFlat YoY, up +20% MoM; including 161,000 overseas units (+80%), 216,000 domestic units (-25%)
• NIO May Total Deliveries37,700 unitsUp +62.3% YoY, +28.4% MoM; NiO brand over 20,000 units, Onvo L80 launch drove 12,000 units
• Li Auto May Deliveries33,400 unitsDown -18.4% YoY, L9 Lite version received over 10,000 orders, L9 Ultra version orders insufficient

Impact & implications

The report believes that the current market environment is accelerating industry consolidation: Automakers relying solely on the domestic market will face continuous pressure, while those with global supply chain capabilities, rapid technological iteration abilities, and multi-brand operational experience are likely to expand market share. For investors, attention needs to shift from 'pure electric concept' to focus on specific companies' overseas progress, profitability construction, and intelligentization implementation efficiency, rather than broadly viewing industry β.

Risks

• Continued intensification of competition in domestic new energy vehicle market may compress profit margins of vehicle manufacturers and component suppliers
• Lack of incremental support policies creates uncertainty about domestic terminal demand recovery pace
• Export faces trade barriers and localization challenges
• Accelerated technological iteration shortens existing model lifecycle

What to watch

• June Li Auto L8 launch and smart cabin technology conference feedback
• BYD blade battery external supply progress and overseas factory commissioning pace
• NIO ES9 delivery ramp-up and battery swap station break-even progress
• XPENG G7 mass production and European delivery timeline