Gasgoo Munich- Xiao He works in the auto sector. In 2020, on the advice of a friend in the securities industry, she bought a new-energy vehicle fund for the first time. She had good timing, catching the broad rally around 2021, and her fund's paper profit peaked at 90%. Back then, she thought it would go higher, so she held on.
Later, influenced by friends, Xiao He wasn't satisfied with just funds. She opened an account to buy individual stocks. The result? Over six years, she didn't make a dime—she lost about 10,000 yuan. "When it rose, I was greedy and wanted more. When it fell, I waited to break even." That cycle trapped her.
Xiao He isn't an outlier. From 2021 to 2025, China's new-energy vehicle sales surged from 3.5 million to 16.49 million—a nearly fourfold jump. Yet for many investors who bought auto stocks, these five years weren't about building wealth; they were about getting stuck.
The industry is growing, but investors are losing money. The investment logic for auto stocks has shifted.
Once a Hot Favorite
2021 was the golden age for auto stocks.
Xiao He still remembers that summer. In the office, during lunch breaks, colleagues weren't talking about cars—they were discussing how much their funds or stocks had risen. The new-energy vehicle fund she bought nearly doubled in paper profit at its peak.
In 2021, the CSI New Energy Vehicle Index climbed 56.96% for the year. It was an era where "buying funds meant making money." Funds that sold out in a single day were common, with scenes of subscriptions exceeding 10 billion yuan playing out repeatedly. The new-energy track was the center of capital's attention. For instance, when the Invesco Great Wall New Energy Industry Fund launched, subscriptions exceeded its 6 billion yuan cap, ultimately triggering proportional allotment.
Image source: 699pic
Why was capital so frenzied? Because they weren't buying cars; they were buying the future. At the time, the market generally believed three things.
First, new energy would replace internal combustion engines. This was a certain industrial revolution, much like smartphones replacing feature phones. Whoever seized this opportunity would become the next Apple.
Second, Chinese automakers would spawn global giants similar to Tesla. BYD, NIO, Li Auto, Geely... all were held in high regard. The moment Tesla's market value surpassed Toyota's, many believed Chinese automakers could do the same.
Third, intelligence would redefine the car. Vehicles would become "smartphones on four wheels," with software and data becoming new profit sources. Just as Apple made a fortune from the App Store, future automakers would profit from software fees.
With these three layers of expectations stacked, the market handed auto stocks valuations far beyond those of traditional automakers.
By the end of 2021, CATL's market cap hit a peak of 1.6 trillion yuan, with its stock touching a historic high of 692 yuan. Institutions widely regarded CATL as the "Moutai of the new energy era." Around the same time, BYD's market cap briefly broke the 1 trillion yuan mark.
In August of that year, the CSI New Energy Vehicle Index's price-to-earnings ratio hit 160 times. Back then, the market didn't care if automakers were making money now; it cared about how much they could make in the future. Few questioned that narrative.
Xiao He's friend, Xiao Ming, bought BYD when the stock was around 90 yuan and sold in 2021 when it topped 200 yuan. He needed the money for a house, so he didn't regret selling early. But most people didn't sell; they believed the stock would keep rising.
Xiao He didn't sell her fund either. Influenced by friends, she felt new energy was a long-term play worth holding. She even recommended this fund to three or four friends.
One friend bought in and out quickly, pocketing a profit to buy a luxury bag worth tens of thousands. In hindsight, that friend turned out to be the smartest one.
The 2021 rally wasn't driven by how much money automakers were making then, but by the market betting on a decade of industrial change. But the problem is, the future arrived too fast—and too cruelly.
After the Tide Recedes: From Betting on Sectors to Betting on Winners
By 2022, the tide began to recede. That year, the CSI New Energy Vehicle Index fell nearly 30%.
Xiao He lost over 9,000 yuan that year, wiping out most of her gains from the year before.
The plunge in new-energy funds was closely tied to the broader environment. The pandemic, rising upstream raw material costs, subsidy cuts, Federal Reserve rate hikes... negative factors piled up, cooling the new-energy sector's heat rapidly as it entered a so-called correction phase.
In April 2022, CATL's stock fell below 400 yuan, and its market cap dropped below 1 trillion yuan. That was just four months removed from its 1.6 trillion yuan peak.
A wave of fund redemptions hit. Many investors who entered at the 2021 peak, unable to stomach the losses, cut their positions and left. Xiao He exited in late October that year. But she didn't abandon auto stocks; she just stayed on the sidelines for a while. In 2024, she bought back into her previous fund. Also, influenced by her friend Xiao Ju, she started paying attention to individual stocks.
Xiao Ju has studied the stock market, especially auto stocks, deeply. She lost several hundred thousand yuan in the previous two years but recovered much of it in 2024. She recommended buying BYD and CATL. "These two are leaders; they can weather the cycles."
2024 was indeed a year for individual stock performance. That year, capital markets began shifting from "valuing the sector" to "valuing the company." Take Seres, for example. Tied to the Huawei ecosystem and riding on the hot sales of its AITO series, the stock surged from just over 20 yuan in 2023 to more than 130 yuan by the end of 2024.
Xiao Jun also entered the market that year. He currently holds three automaker stocks: BYD, held for 428 days; Seres, held for 545 days; and JAC Motors, held for 323 days. He bought Seres when it was around 90 yuan and watched it touch a historic high of 173 yuan before falling all the way back down.
"A year ago, the auto sector was still very hot, with plenty of foreseeable room for growth," Xiao Jun recalls. Back then, BYD hadn't even released its fast-charging tech. He was bullish on the Huawei camp—Seres' move into robotics and its investment in Yinwang brought sustained positive news.
The launch of the Maextro S800 brought a lot of speculation to JAC Motors. So, Xiao Jun bought into JAC. His profit expectation for JAC was over 20%. "I was so confident in auto stocks then; if I hit the target, I might have held longer." He had once sold JAC for a profit, but as the stock kept rising, he jumped back in.
Yet, the journey from a massive surge to a steep slump took less than a year.
As of August 11, Seres' stock price had fallen to around 56 yuan—a drop of roughly 70% from its historical high. Its market cap shrank from 300 billion yuan to less than 100 billion yuan. JAC Motors' stock fell from last year's high of 58.8 yuan to around 26 yuan currently, with its market cap shrinking to about 56 billion yuan.
Xiao Jun was trapped. He was devastated.
In the second half of 2025, acting on a friend's advice, Xiao He bought shares in Qianli Technology, a smart-driving stock under the Geely umbrella. The reason was straightforward: Geely's backing, its rapid rollout of intelligence and new energy, and the boost to Qianli Technology's business.
Qianli Technology was formerly Lifan Technology; the Geely camp became a major shareholder after its bankruptcy restructuring. In early 2025, Lifan Technology officially renamed itself Qianli Technology, focusing on the core "AI + Vehicle" strategy. It co-launched the Qianli Haohan smart driving system with Geely, and in the second half of 2025, attracted investment from a Mercedes-Benz affiliate. Multiple positive factors pushed the stock past 13.8 yuan per share at one point last year.
Image provided by Xiao He
Unfortunately, Xiao He bought at the absolute peak. Now, Qianli Technology has cost her over 10,000 yuan, with a loss rate exceeding 30%. It's painful to hold, but she can't bear to sell, so she comforts herself that it will inevitably turn around.
Xiao Jun bought Qianli Technology as well—and is similarly trapped.
Another investor, Xiao Liang, bought into a new-energy vehicle fund. After warming up in the first half of this year, it is now down 6%.
The experiences of these three are not isolated cases. From the second half of 2025 to now, the auto sector has undergone significant volatility, with some popular auto stocks tracing a "down—up—down" trajectory.
Buy the Dip?
Institutional holdings have dropped to the bottom, and voices calling to "buy the dip" are emerging in the market.
A latest report from Orient Securities shows that in the second quarter of 2026, active funds' heavy allocation to the auto sector was just 1.9%—a drop of 2.2 percentage points quarter-over-quarter and a five-year low. In terms of market cap weight, the auto sector accounts for 3.3% of the total A-share market, resulting in an underweight of 1.3 percentage points. The report notes that fund holdings in passenger vehicles and auto parts have both fallen to the bottom range.
Xiao He decided to enter after seeing content like this. She figured institutional holdings had bottomed out, so the sector should rebound. She bought JAC Motors. But as of now, she's still in the red.
In late July, the auto sector did experience a brief warm-up. As of July 31, the CSI Auto Index closed at 9,269.98 points, up 0.78% on the day. Individual stocks saw gains: SAIC Motor rose 1.5%, JAC Motors jumped over 7%, while Seres and Changan Automobile posted modest increases.
But that warm-up didn't last. Entering August, the sector began to oscillate and pull back. On August 11, the CSI Auto Index closed lower. Since its May high, JAC Motors' stock price has retraced nearly 50%, and BYD's stock is clearly below its high of the past year.
Behind the pullback is a lack of sufficient support from industry fundamentals. Data from the China Association of Automobile Manufacturers shows domestic passenger vehicle sales reached 8.287 million units in the first half, a 24.3% year-on-year decline. The only bright spot was exports, which hit 4.432 million units, a 72% annual increase.
The domestic market increasingly resembles a battle for existing share, while overseas markets are becoming the new source of growth—but not enough yet to support a significant improvement in overall market scale and performance. This means the auto industry hasn't run out of stories, but the old ones are ending, and the new ones have yet to prove themselves.
Facing this market, most retail investors are choosing to watch from the sidelines. Xiao Xia has held an auto ETF for two or three years; though it warmed up a bit this year, he has no plans to increase his position. Xiao Liang is in the same boat—he just wants to wait for a 20% recovery to sell his fund.
Xiao Jun, however, is sticking with BYD for the long haul. For him, the core criterion for distinguishing between long-term holding and short-term interest is "future potential and a new narrative." BYD's globalization is the new story he's betting on.
That story is coming to fruition. From January to July 2026, BYD's overseas sales neared 970,000 units, with July alone approaching 180,000 units. Overseas sales now account for 40% of the total. Its plants in Brazil and Thailand are already in mass production, while overseas bases in Hungary and Turkey are moving forward.
In the past, the market bought into the growth expectations brought by the rapid rise of new-energy penetration. Now that penetration has entered high territory—retail penetration of new-energy passenger vehicles exceeded 65% in July 2026—industry competition has shifted from "who can capture the NEV bonus" to "who can survive the inventory war and actually make money." But under the pressure of a price war, most automakers are seeing their profits squeezed.
Industry growth doesn't equal corporate profitability, let alone stock price appreciation. The incremental growth brought by rising new-energy penetration hasn't translated into synchronized profit growth amid a surge in player numbers and intensifying price competition. Data shows the auto industry's overall profit margin has slipped to around 3%. The growth expectations traded in advance have been steadily realized, dragging down the valuation level, and capital is now seeking new high-growth expectations.
When profits falter, the market needs a new narrative to support valuations. "Now that new-energy vehicle penetration has surpassed 50% and the new forces have emerged, we've essentially entered an era of diverse competitors."
Xiao Jun believes profitability is an important metric, but it's not enough—capital markets also need new room for imagination. "What sustains market sentiment is a new story. Actually, everyone is looking for a new narrative—like XPENG's robots or Li Auto's moves beyond range extenders. We'll have to see if these new stories can hold up."
But for veteran investor Tian Hu (a pseudonym), these new stories aren't enough to lift auto stocks back to their peaks. "The upside for electric vehicles is limited now, and stocks trade on expectations." He judges that auto stocks will remain volatile for a long time unless truly explosive new technology appears. Currently, the only growth direction he favors in the entire auto sector is exports.
Image source: Huaban
"I think we need to keep a close eye on emerging industries like energy storage and computing power," Tian Hu says.
Capital is already voting with its feet. Xiao He plans to sell Qianli Technology and other auto stocks once she breaks even or her losses narrow, pivoting entirely to tech stocks, particularly those related to artificial intelligence. She has already bought into quite a few tech funds and stocks. Xiao Liang also bought into AI tech stocks and has made significant gains.
In capital circles that chase the next big thing, auto stocks just aren't as hot anymore.
But this isn't a problem for the auto industry.
Any industry moving toward maturity goes through this moment: when an incremental market turns into a saturated market, when the speed of storytelling can't keep up with the expansion of capacity, and when the industry shifts from "competing on who has the bigger story" to "competing on who can actually convert scale, technology, and cost into profit"—that's when capital starts to retreat.
The internet did it. Smartphones did it. New-energy vehicles are doing it. This isn't the failure of an industry, but the necessary path from adolescence to adulthood.
The real test begins precisely when the tide goes out. That's when a company's true operational capability is put under the spotlight. Companies surviving on financing will disappear; those surviving on technology and efficiency will remain. The price war will wash out a batch of players, industry concentration will increase, and profits will concentrate at the top. This process may be cruel, but it's not necessarily bad for the industry's long-term health.
And capital? It is always chasing the next story. From new energy to AI, from energy storage to computing power, the track changes, but the logic remains the same—always rushing in when expectations are at their fullest, and leaving when realization is the hardest.
For ordinary investors, the hardest part isn't finding the next windfall—it's admitting that you might not find it. Not everyone can exit at the hottest moment, nor can everyone buy at the bottom. More often than not, we are drawn in at the peak, choose to hold on at the bottom, and then repeat the same mistake in the next cycle.
Investing, ultimately, is a battle against your own nature. Understanding cycles, accepting divergence, and not being swept away by market emotion are more important than successfully betting on a single sector. The story of auto stocks is over, and there will be another one. But in the next story, I hope we can all be a little calmer and a little less greedy.
