Xpeng’s shares stumbled after the electric vehicle maker reported revenue forecasts that fell short of expectations. The slowdown in China’s EV market, once a powerhouse for growth, is starting to bite hard.
Slower Sales Shake Up China’s EV Market
China’s electric vehicle sector, which has enjoyed rapid growth over recent years, is showing clear signs of cooling. After nearly two years of government incentives that boosted sales, demand is now softening. Xpeng’s latest earnings and revenue outlook highlight the struggle to maintain momentum. The company’s shares dropped 10% in Hong Kong following the announcement.
Other domestic EV makers aren’t faring much better. Li Auto and Nio also released fourth-quarter forecasts that missed analyst expectations, pointing to sluggish consumer appetite in a critical sales period. Zhejiang Leapmotor’s profit came in at less than 65% of estimates despite a sharp rise in sales, pushing its shares to their lowest since April.
Government Support Fades, Competition Heats Up
China’s EV growth, which surged 27% this year, is forecast to slow to just 13% in 2026, according to Bloomberg Intelligence. The government’s phase-out of tax exemptions on EV purchases next year is a major factor behind the decline. The trade-in and scrappage policies that had stimulated demand are expiring, leaving a vacuum that consumers may be reluctant to fill.
Bing Yuan, a fund manager at Edmond de Rothschild Asset Management, said the first quarter of 2026 will likely be tough. She warned that ongoing discounts will pressure margins as competition intensifies. Costs are also expected to rise, squeezing profits further. The market is bracing for a challenging environment where EV makers will have to fight hard to maintain market share.
Broader Industry Worries Cloud Outlook
The troubles at Xpeng and its peers come amid growing investor anxiety about the overall profitability of China’s EV industry. Even BYD, the world’s largest battery-electric vehicle maker, is showing signs of pressure.
The rapid expansion that fueled high stock valuations earlier this year is now raising questions about sustainable earnings.
Wall Street is also watching the broader context of interest rate moves by the Federal Reserve. Although a likely quarter-point rate cut could support growth stocks including EV makers by lowering discount rates on future cash flows, the short-term challenges in China’s market are casting a shadow.
The so-called “EV winter” narrative — marked by slower sales and subsidy reductions — is clashing with longer-term forecasts that still see strong growth. Analysts from Gartner project the global EV fleet will jump 30% in 2026, with China expected to hold about 61% of the total vehicles on the road. But that growth will probably be uneven, and the near-term pain is palpable for companies like Xpeng.
Implications for Investors and the EV Sector
Investors who had been betting on a sustained surge in Chinese EV sales are now reacting to the reality of a market correction. Xpeng’s share performance, down from a year-to-date gain of more than 130%, reflects shifting sentiment. The cooling domestic demand and uncertainty over government policy support make it harder for EV makers to meet ambitious targets.
That said, some analysts caution against overreacting to short-term misses. The broader EV adoption trend remains intact, and indirect supply chains, like those supplying Tesla through LG Energy Solution, continue to perform well. But for companies heavily reliant on direct sales in China, the next year will be a test of resilience.
The industry’s ability to adapt — through innovation, cost control, and expanding into new markets — could determine who thrives once the current slowdown passes. For now, though, the message is clear: the golden days of easy EV sales growth in China are on pause.
Xpeng’s revenue forecast miss is a stark signal that the Chinese EV boom is hitting a rough patch. The coming months will reveal whether the sector can rebound or if the slowdown will deepen into a longer-term challenge.
