By Jiahui Huang
China's electric-vehicle makers got off to a rocky start this year as fading government support and softer demand weighed on the world's largest auto market.
Major players including BYD, Li Auto and XPeng all reported weaker profitability for the first three months of the year, underscoring the mounting pressure facing the sector after years of subsidy-fueled growth and intense price competition.
Shares of Li Auto and XPeng were down over 4% each in Hong Kong on Friday after both reported first-quarter losses. The stocks have shed about 11% and 20% so far this year.
Even Tesla rival BYD, which has more of a buffer thanks to its outsized market share, posted a 55% profit drop in the first quarter.
The earnings come as China's EV market enters an era of slower growth after years of breakneck expansion.
The demand boost provided by tax exemptions for EV purchases and generous government subsidies introduced in 2024 and 2025 has ebbed as the measures expire.
Higher material costs are weighing too.
Prices of core components, from the lithium needed for batteries to the memory chips that power self-driving features, are soaring due to supply-chain constraints stemming from geopolitical issues and the artificial-intelligence buildout.
Against that backdrop, Chinese companies rolled out fewer models during the quarter, limiting consumers' incentive to buy new cars. Only 18 new models were released over January-March, data from the China Passenger Car Association showed, down from 33 in the same period in 2024 and 28 for the prior-year period.
Investors and analysts are now increasingly differentiating between companies with strong product pipelines, tech advantages and overseas growth potential, and those struggling to maintain momentum in China's over-crowded market.
BYD remains in favor thanks to its popularity overseas. Recent model launches will likely help it regain sales momentum after a weak start to the year.
The first-quarter blip "could mark a clearing event for [BYD's] stock," Bernstein analysts wrote in a note.
Despite its earnings miss, XPeng still impressed with more resilient-than-expected margins and strong second-quarter guidance. Analysts are also optimistic on the prospects of its new GX model and efforts to expand beyond EVs.
"We believe XPeng's ambition in exploring the physical AI world with potential new businesses such as robotaxis, humanoid robots and flying cars may eventually bear fruit," Nomura analysts said in a note.
The outlook seems dimmer for Li Auto, amid mounting concerns over slowing demand and intensifying competition.
Li Auto gave subdued guidance for the second quarter, projecting deliveries of 95,000 to 100,000 vehicles, implying monthly sales of roughly 30,000 to 33,000 units--which Bernstein analysts called an "unseasonal slowdown."
Although the company's L9 Livis luxury SUV received more than 10,000 orders, Nomura analysts think it has to do more to spur orders for the L9 Ultra version, and for upcoming new models.
Li Auto's quarterly results also underlined the margin squeeze from higher costs, a trend Nomura doesn't expect to abate soon. "We believe the bumpy ride is likely to continue."
Bucking the industry sluggishness was NIO, which exceeded expectations.
After a challenging 2025 marked by soft sales and a lack of demand for its premium cars, NIO reported a first-quarter earnings beat.
NIO's ES8--its key volume and margin driver--showed resilient order and delivery momentum, HSBC Global Research analysts said.
Analysts at Jefferies expect the automaker to outperform in the first half thanks to strong product sales. Shares of NIO were also down over 4% Friday, but are up 3.5% for the year.
Write to Jiahui Huang at jiahui.huang@wsj.com
(END) Dow Jones Newswires
May 29, 2026 02:45 ET (06:45 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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