NIO Founder Warns China Car Sales Could Plunge 20% in 2026
NIO founder and CEO William Li has delivered one of the most dire forecasts yet for China’s auto industry, predicting that domestic passenger car retail sales could fall by 15% to 20% in 2026. Speaking at the China Auto Chongqing Summit on June 13, Li warned that the world’s largest auto market has entered what he called “the most brutal final stage of competition,” as Caixin Global reported.
A Market in Freefall
The grim forecast is already being borne out by the data. According to the China Passenger Car Association (CPCA), domestic retail sales fell 19.5% year-on-year in the first five months of 2026 to approximately 7.1 million units. May alone saw a 22.1% decline, with sales dropping to 1.51 million units. The downturn accelerated further in early June, with the decline widening past 22%.
Li noted that any remaining industry illusions about a rebound have been shattered. “In Q1, people still thought there might be some adverse effects from last year’s policies causing early release, but after entering April and May, the industry should no longer have such illusions,” he said, according to the Chengdu Business Daily.
The pain is not evenly distributed. Internal combustion engine vehicles bore the brunt of the collapse, with sales plummeting 39% year-on-year in May to just 560,000 units. New energy vehicles (NEVs) fared better but still declined 7.5% to 950,000 units. However, pure electric vehicles bucked the trend entirely, rising 3.9% year-on-year to 637,000 units.
A Historic Tipping Point
May 2026 marked a historic milestone: NEVs captured a record 62.9% of total domestic retail sales, while pure EVs alone reached 42.2% penetration — surpassing internal combustion engine vehicles for the first time. Li described the shift toward pure electric vehicles as irreversible, driven by the rapid expansion of charging and battery swap infrastructure.
NIO’s Counter-Trend Surge
Despite the broader market’s struggles, NIO is experiencing a remarkable growth spurt. The company delivered 150,526 vehicles in the first five months of 2026, a 68.7% surge year-on-year. In Q1 alone, deliveries jumped 98.3% to 83,465 vehicles. Li reaffirmed NIO’s ambitious target of 40% to 50% annual sales growth for 2026, as CnEVPost reported.
NIO has also reached a significant financial turning point. The company posted an operating profit of 1.25 billion yuan in Q4 2025 and sustained profitability with 68 million yuan in operating profit in Q1 2026 — a remarkable achievement amid the industry downturn.
Li attributed NIO’s resilience to heavy investment in core technologies and infrastructure. Over 11 years, cumulative R&D spending has exceeded 68.8 billion yuan, while investment in charging and battery swap networks has surpassed 20 billion yuan. The company’s multi-brand strategy — spanning the premium NIO brand, mass-market Onvo, and compact Firefly — is also paying dividends. Firefly’s sales in the premium compact segment have exceeded the combined total of Mini and Smart, while the ES8 has been the sales champion in the large SUV segment for six consecutive months.
An Industry at a Crossroads
Li’s characterization of the market as entering a “final stage” of competition signals that significant consolidation lies ahead. Weaker automakers, particularly those reliant on internal combustion engine vehicles or lacking strong balance sheets, face existential risk. Rising raw material costs are compounding the pressure — SERES chairman Zhang Xinghai noted at the same forum that memory chip prices have surged nearly fivefold, while lithium carbonate price spikes have added 15,000 to 20,000 yuan per vehicle for some brands.
“The auto industry is a marathon on a muddy road,” Li said. “During this challenging transition period, there are no miracles or shortcuts to quick victories.”
What to Watch
The key question now is whether the Chinese government will introduce stimulus measures to support the auto industry. With the sector employing millions and serving as a bellwether for consumer confidence, Beijing may be compelled to act. Meanwhile, Chinese automakers are increasingly leaning on overseas markets — exports surged 75.1% year-on-year in May to 784,000 units — though geopolitical tensions with the EU and US pose significant risks to this strategy.
For NIO, the challenge will be sustaining its remarkable growth trajectory if the broader market continues to contract. But for now, Li’s message is clear: China’s auto industry is in the midst of a historic transformation, and only the strongest will survive.