Gasgoo Munich- New energy vehicle (NEV) penetration exceeded 60% for three months. China's NEV startups face a harsh reality: higher sales complicate profitability.
Leapmotor was first to surpass 100,000 monthly sales. NIO narrowed its net loss by nearly 90%. Li Auto holds 87.5 billion yuan for its electric transition. XPENG boosts margins via tech licensing. Xiaomi's auto unit accounts for over a fifth of group revenue. Yet, they face a common dilemma: making money is getting harder.
China's auto market entered a "growth without profit" phase. Expansion requires investment and spending, but profit goals demand cost control. Balancing scale, profitability, and technology is unavoidable.
New Forces at Mid-Game: Seeking Solutions
First-half reports from the five startups reveal a striking fact: their development rhythms have diverged.
Scale divergence is the most visible. Leapmotor delivered 356,500 vehicles in the first half. This is nearly double XPENG and 1.9 times NIO. In July, it became the first startup to exceed 100,000 monthly deliveries. It crossed the mass production threshold.
With 38.11 billion yuan in revenue and 210 million yuan in net profit, Leapmotor proved profitable for three half-years. 100,000 monthly units can amortize costs. But scale has a price. Rising costs for storage chips and lithium iron phosphate forced Leapmotor to lower its full-year net profit target. The target dropped from 5 billion to 3 billion yuan.
Leapmotor Senior Vice President Li Tengfei acknowledged on an earnings call that the annual target is "extremely difficult." The core test is whether scale effects can offset cost pressures.
NIO sticks to its high-end positioning, unlike Leapmotor's volume strategy. First-half revenue reached 57.67 billion yuan, up 85.8% year-on-year. This is the highest among startups. Net loss narrowed by 89.9% to 1.218 billion yuan. Vehicle gross margin stood at 18.5%, second only to Xiaomi.
High-end positioning drives NIO's profitability. The average transaction price reached 406,000 yuan in Q2. This gives it a 38% share of the pure-electric market above 400,000 yuan. William Li revealed per-vehicle costs rose by 14,000 yuan in Q2. However, premium mix and scale effects partially offset this pressure.
Image source: ONVO
The ONVO brand is still ramping up. Scale benefits of its battery-swapping network have yet to materialize. This leaves room for NIO to optimize multi-brand synergy.
Li Auto is transitioning to pure electric power. First-half revenue fell 13.4% to 48.65 billion yuan. The company swung to a net loss of 3.98 billion yuan. A year earlier, it posted a profit of 1.74 billion yuan.
The shift stems from product mix changes. The pure-electric i6 SUV, priced from 249,800 yuan, accounted for over 60% of first-half sales. This dragged down per-vehicle revenue and gross margins. Notably, Li Auto's gross margin improved by 3.1 percentage points quarter-on-quarter to 11.0% in Q2.
Li Xiang noted the order split between extended-range and pure-electric models is approaching even. This is the clearest structural shift since the "dual-energy strategy." With 87.5 billion yuan in cash reserves, Li Auto has solid footing for the transition.
XPENG chose technology monetization. Total revenue fell 3.8% to 32.78 billion yuan. Net loss hit 3.12 billion yuan as deliveries fell 15.8%. However, overall gross margin reached 20.7%, the highest among the five. This was driven by a 75.1% margin in services. Revenue from tech licensing and partnerships is rising. It has become a key income stream.
XPENG spent 2.91 billion yuan on R&D in Q2, up 32.1% year-on-year. Despite short-term adjustments in its auto business, XPENG is doubling down on tech investment. This lays groundwork for long-term monetization.
Image source: Xiaomi EV
Xiaomi, the latest entrant, leverages its ecosystem for speed. Financial reports show smart EV and AI revenue reached 44.76 billion yuan in the first half. This accounts for 21.5% of total group revenue. Vehicle deliveries stood at approximately 185,000 units. This is up 28.2% year-on-year in Q2. The automotive gross margin was 19.2%.
The "human-car-home" ecosystem is Xiaomi's unique advantage. However, profit pressures remain. The company posted a profit in Q4 2025 but returned to the red in the first half. Gross margins fell from 26.4% a year ago to 19.2%. Of the 550,000 full-year target, only 220,000 were completed in the first seven months.
Five companies, five strategies. Leapmotor chases scale, NIO guards the high end, and Li Auto pushes transition. XPENG leverages technology, while Xiaomi bets on its ecosystem. Paths differ, but each makes trade-offs among scale, profitability, and tech investment.
Divergence Amid Industry Upheaval
Startup divergence is not isolated. It reflects deeper shifts across the industry. The broader backdrop of the Chinese auto market provides context for these divergent performance curves.
China's auto market in the first half of 2026 navigates complex factors. NEV penetration climbs, but domestic demand is sluggish. Exports surge, yet profit margins compress. Technology iterations accelerate as differentiation advantages narrow.
"Pressure on domestic demand" defines the first-half market. It is the backdrop for the split in startup deliveries.
CAAM data shows auto production and sales reached 14.993 million and 15.017 million units. This is down 4% and 4.1% year-on-year respectively. Domestic sales totaled 9.921 million units, a 21.1% decline.
In this stock competition, the startup divide has widened. Leapmotor achieved 60.8% delivery growth via its value proposition. XPENG and Li Auto saw deliveries drop by 15.8% and 5.2%. The industry shifted from growth to market-share battles. Startups must seize growth from competitors.
Rapid export growth has opened new horizons for startups.
Image source: Huaban
CAAM data indicates auto exports reached 5.096 million units in the first half. This is up 65.3% year-on-year. NEV exports hit 2.355 million units, doubling from last year. In June, monthly exports surpassed 1 million units for the first time. NEVs accounted for nearly 60%.
Image source: @Lu Weibing
Leapmotor, XPENG, and NIO are accelerating global expansion. Leapmotor covers over 45 countries and regions. Overseas sales accounted for 20% of its total in July. XPENG's overseas revenue jumped over 60% in the first half. Xiaomi EV signed MOUs with eight German dealer groups at IFA Berlin 2026. It plans to enter Europe, including Germany, in 2027.
Exports are a core engine for growth. However, rapid expansion risks cannot be ignored. Trade protectionism is rising in the EU and US. Tariff barriers and localization requirements raise the entry bar. An export structure dominated by mid-to-low-end models makes "growth without profit" hard to avoid.
Going overseas is both an opportunity and a challenge for startups. Establishing brand awareness and perfecting service systems in foreign markets is crucial. It determines if exports translate volume growth into profit growth.
Furthermore, as NEV penetration rises, industry profit margins steadily decline. This contradiction in the first-half 2026 market demands deep reflection.
CPCA data shows retail penetration of new-energy passenger vehicles reached 62.8% in June. This exceeded 60% for three straight months. NEVs shifted from a "growth market" to the "mainstream market." Yet, Chen Shihua, CAAM deputy secretary-general, disclosed a forum. Vehicle manufacturing profit margin from January to May 2026 was just 1.5%. This is the lowest in a decade. CPCA data puts overall auto industry profit margin at 3.6% for the first seven months of 2026. This remains below the downstream industrial sector average.
Against thin margins, startup profitability stands out. Leapmotor was profitable for three consecutive half-years. NIO significantly narrowed its losses. Li Auto, XPENG, and Xiaomi remain in the red. Gross margin divergence is stark. Xiaomi is at 19.2%, NIO at 18.5%, XPENG at 12.1%, and Leapmotor at 11.7%. Li Auto is at 7.8%. The gap exceeds 11 percentage points.
Behind "growth without profit" lies a double squeeze from price wars and rising costs. William Li, Li Xiang, and Li Tengfei mentioned this pressure on earnings calls.
Consequently, Leapmotor cut its full-year net profit target. Li Bin revealed per-vehicle costs rose 14,000 yuan in Q2. Li Xiang stated the company "will not pass cost increases on to consumers."
Gasgoo Auto analysts attribute profit pressure to a four-fold squeeze. Market-wise, stock competition and fading policy support fueled a price war. This narrows per-vehicle margins. Cost-wise, rigid spending on raw materials, chips, and R&D is high. This increases pressure to amortize sunk costs. Operationally, high inventory and low capacity utilization hinder spreading fixed costs. Price cuts to clear inventory erode profits. Export-wise, rising barriers and localization investments mean short-term profits cannot offset costs.
In this environment, scale effects and cost control are critical for survival. Leapmotor's early profitability testifies to the power of scale.
Under profit pressures, the focus of competition is quietly shifting.
Image source: XPENG
AI large model integration and smart driving democratization are new trends. L2+ intelligent driving is moving into vehicles priced around 100,000 yuan. Intelligence is no longer exclusive to high-end models. Traditional automakers are closing the intelligent-tech gap. This dilutes the "smart" advantage startups relied on.
Today, a "smart label" is insufficient for a differentiated edge. Competition is shifting from "who is smarter" to balancing intelligence, cost, and scale.
Gasgoo analysts point out a "value migration window." In the ICE era, manufacturing, distribution, and financial services formed a complete profit structure. EVs flattened manufacturing margins. New profit pools like subscriptions and energy services lack scale. As old pools recede and new ones fail to replace them, this gap explains startup losses.
Rivals No Longer "A Step Behind"
In this environment, startup competitors are no longer just each other.
The accelerated transformation of traditional automakers rewrites the competitive map. After years of testing, the battle between startups and legacy automakers entered a new phase. It is now head-to-head combat.
The new-energy transition of traditional automakers moved beyond "following." In several dimensions, they have overtaken. In the first half of 2026, Geely took the top spot among domestic brands. It had 1.0213 million retail sales. BYD held a dominant 21.1% share of the new-energy market. Geely, Chery, Changan, and others are achieving rapid growth.
After years of investment, traditional automakers are rapidly closing gaps in core new-energy and intelligent technologies.
In "three-electric" systems, leading domestic brands achieved full-stack self-development. They no longer lag in range, efficiency, safety, or cost control. Smart cockpits feature proprietary OS and AI assistants. In autonomous driving, functions like highway pilot and city NOA are coming to market.
Critically, systemic capabilities accumulated over decades are paying off. Cost amortization from million-unit sales and mature supply chains matter. Brand matrices cover low to high-end segments. Overseas distribution channels and recognition are converting into competitive momentum.
Rapid growth at Geely, BYD, Chery, and Chanan results from "scale plus system plus technology." Startups no longer face slow-to-turn traditional rivals. They face all-round players with capital and supply chain foundations. These players are catching up on intelligent technology.
Additionally, competitors include foreign brands accelerating their transformation.
Image source: Doubao AI
Foreign brand market share in China fell below 30%. Volkswagen, BMW, and Mercedes-Benz saw double-digit sales declines in the first half. Yet, they possess deep brand equity in the high-end market above 300,000 yuan.
High-end models from NIO, Li Auto, and Xiaomi seize share from the German trio (BBA). The retreat of foreign brands opened space. However, Volkswagen and BMW are accelerating electric transformation. They will not easily abandon the Chinese market.
This means startups in the high-end market race against time. Establishing a solid user base before foreign brands complete their transition will shape the next competitive landscape.
As traditional automakers close the tech gap and foreign brands electrify, market share concentrates. Startups must answer a fundamental question: What will they rely on to win?
Conclusion:
First-half 2026 financial reports point to one proposition. In an environment of "growth without profit," how can balance be found? It must balance scale expansion, profitability, and tech investment.
The answer is unrevealed. However, the time window left for each company is narrowing.
