Bank of America analyst Ming Hsun Lee signaled a challenging outlook for China’s auto and electric-vehicle (EV) industry in 2026, saying the bank has reduced its sales and earnings projections for most automakers. The revisions reflect both weakening demand and an escalation in input costs, according to a note published on Thursday.
Lee highlighted several demand-side pressures that should depress sales volumes, especially among lower-priced models. In his words, "intensified competition, higher EV purchase taxes, and reduced trade-in subsidies should weigh on sales volume, especially lower-priced cars." At the same time, he warned that cost pressures are increasing across the supply chain, which will erode manufacturers' profitability.
On costs, Lee pointed to rising prices for key components and materials. He wrote that "rising raw material prices (memory chips, battery, and metals) should weigh on OEMs' profitability," a development that led Bank of America to lower its earnings forecasts for the year. The bank's supply-chain checks produced more granular estimates of the per-vehicle cost impact:
- Memory price increases add roughly RMB1,000-3,000 per car, depending on the vehicle's intelligence level.
- Battery and battery-material inflation adds about RMB1,000 per plug-in hybrid EV and around RMB3,000 per battery EV.
- Metal price rises have lifted costs by about RMB300-800 per car as of February 2026, relative to end-3Q25.
Those cost pressures come as automakers are being pushed to maintain product competitiveness. Lee argued that manufacturers will need to "step up investment in AD and smart cabins to keep product configurations attractive," even while margins are under strain.
Despite the headwinds in the domestic market, Bank of America identified a noteworthy upside: exports. The bank expects EV exports to grow about 40% in 2026, versus roughly 7% growth in domestic EV sales. Lee noted that Europe is already receiving China-built models such as the Cupra Tavascan.
Another area highlighted for rapid expansion is robotaxis. The report said deployments are expected to reach 5,000 units in 2026 and then grow sharply through the remainder of the decade.
Implications
The combined effect of weaker volume, higher taxation and lower subsidies on the demand side, together with rising input costs on the supply side, has prompted Bank of America to revise down its 2026 sales and earnings outlooks across much of China's auto industry. While export growth and early-stage robotaxi rollouts provide some offset, they do not appear sufficient to fully counterbalance the broader margin and sales pressures the bank identifies.