UPDATE: New reports from Nomura indicate that China’s electric vehicle (EV) market is on the brink of a significant demand downturn due to tightening subsidy policies. As of 2025, the newly released auto subsidy framework signals a shift away from the aggressive support that has spurred rapid EV adoption in recent years.
The tightening of these policies comes at a critical time when manufacturers are already facing slowing growth and fierce competition. Analysts at Nomura forecast that this transition will heavily impact domestic demand, particularly among mass-market and entry-level EV models that have been dependent on price incentives to drive sales.
Nomura highlights that the selective nature of the upcoming subsidies will force Chinese EV manufacturers to rethink their strategies. Instead of broad price cuts, companies will likely pivot towards enhancing product features and technological advancements. The bank warns that further price discounting risks eroding profit margins without achieving significant sales volume in a more constrained policy environment.
The implications of this policy shift are substantial, as it indicates a broader transition within China’s auto sector. Growth is increasingly expected to stem from innovation rather than price competition. Nomura predicts that manufacturers excelling in battery efficiency, software integration, and advanced driver-assistance systems will outperform competitors, even as general market growth slows.
Amid these changes, China’s EV market is showing signs of saturation, especially in major urban centers. Meanwhile, demand remains sensitive to affordability and incentives in lower-tier cities. Consequently, Nomura sees increasing downside risks to unit sales in the near term, especially for brands primarily focused on cost rather than technological advancements.
The cautious stance adopted by Nomura regarding the overall auto sector reflects a desire by Chinese authorities to promote higher-quality growth while reducing dependency on subsidies. Although this shift may support the industry’s long-term viability, it raises the bar for manufacturers in the short term.
As the EV market braces for these changes, analysts emphasize that the combination of tightening policies, decelerating demand growth, and intense competition will create a more challenging landscape for China’s EV makers in 2026. Companies that successfully implement technology upgrades and differentiate their product offerings are poised to emerge as winners, while those relying on price-led strategies may face mounting pressures as the market evolves.
The news from Nomura underscores an urgent need for adaptation within the EV industry, making this a pivotal moment that could redefine the future of electric vehicle manufacturing in China. Share this now to keep others informed about the latest developments in one of the world’s largest EV markets!
