Nio CEO William Li expects a slowdown in China’s EV market in the first quarter of 2026 as national tax incentives decline, urging caution for the entire sector.
Tax Incentives to Shrink in 2026
William Li, head of Nio, cautioned that the first quarter of 2026 could be challenging for the electric vehicle market in China. He noted that the national purchase tax benefit, which currently exempts buyers from up to $4,200 in taxes, will be halved to $2,100 per vehicle starting in 2026. According to him, this change is likely to push demand forward into the final months of 2025, leaving weaker conditions at the start of the new year.
Impact Across the Industry
Li emphasized that the issue will not be limited to Nio alone but will affect the entire sector. He suggested that achieving even half of the company’s fourth-quarter 2025 sales in the first three months of 2026 should be considered a success under these circumstances. He added that if some late 2025 orders carry over into early 2026, the company would find itself in a stronger position.
Profitability Goals Under Pressure
Despite these headwinds, Nio is still aiming to post its first non-GAAP quarterly profit in the fourth quarter of 2025. Meeting this goal would mark a milestone for the automaker, which has been under pressure from both slowing domestic growth and intensifying competition from other Chinese EV makers such as BYD and international players expanding in the Chinese market. The looming tax changes, however, may complicate the company’s efforts to sustain momentum.
Battery as a Service Gains Traction
Li also pointed to the continued adoption of Nio’s Battery as a Service (BaaS) program, which allows customers to lease batteries instead of purchasing them outright. More than 70% of buyers of the company’s Onvo L90 SUV have already chosen this model, underscoring how flexible ownership schemes may become even more important as state-backed incentives fade. Analysts note that programs like BaaS could help cushion demand volatility by offering cost-effective alternatives to traditional purchases.
Broader Market Outlook
The coming shift in China’s EV policy reflects the government’s effort to balance industry support with fiscal sustainability. For automakers like Nio, the next year will test how effectively they can adapt to a market that is becoming more competitive and less reliant on subsidies. Li’s remarks signal that companies are bracing for a turbulent start to 2026, even as they seek to secure profitability and maintain investor confidence.
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