Ten Years of Car Manufacturing: Emerging Automakers Finally Making Money

By | Zhou Zhiyu

For the past decade, Chinese emerging carmakers have been most frequently asked one question: When will you make money?

Early last year, NIO CEO William Li gave a timeline—the fourth quarter. Back then, the outside world was half-skeptical; NIO's full-year losses were still expanding, with two new brands burning cash simultaneously.

Not long ago, NIO's Q4 reported a net profit of 283 million yuan. This was NIO's first profit in its 11-year history. In the same quarter, Xpeng earned 380 million yuan, also a first. Leapmotor's full-year net profit reached 540 million yuan, making it the second emerging automaker after Li Auto to achieve annual profitability.

Emerging automakers are successively reaching the profitability line. The industry, which just two to three years ago was discussing "who will survive," now faces a new question: Who can keep earning? However, profitability is just a starting point, a phased breakthrough, and industry competition is fierce.

The environment in 2026 will be much harsher than in 2025. The price of lithium carbonate has more than doubled, purchase tax will be levied, and the number of new energy vehicles priced above 200,000 yuan will equal the total from the past three years. Emerging automakers have just touched the threshold of profitability, and a new set of competitors has already appeared outside the door.

China's new energy vehicle industry is undergoing a watershed moment—shifting from policy-driven to market-driven, from burning cash for scale to profit determining survival. The first profit for emerging automakers is not an endpoint; it's an entry ticket. The second half has just begun.

"Making the First Dollar"

All four companies' Q4 gross margins look decent—Xpeng at 21.3%, NIO at 18.1%, Li Auto's Q4 vehicle gross margin at 16.8%, and Leapmotor reaching 15% in Q4. However, no two companies are making money in the same way.

Sources close to Leapmotor revealed to Yicai that in 2025, Leapmotor mass-produced its self-developed compressors, power supplies, and thermal management systems, even manufacturing high-value parts like seats and bumpers in-house. With over 65% of components self-researched and self-produced, each in-house part pushes costs down.

Leapmotor CEO Zhu Jiangming has stated that Leapmotor is a cost-driven car company.

They sold 596,600 vehicles for the full year, earning approximately 900 yuan per vehicle. The Q4 vehicle gross margin was about 12%, plus about 3 percentage points contributed by carbon credits and Stellantis partnership revenue, totaling about 15%. CICC pointed out in a research report that Leapmotor has entered a full profit cycle, but also noted that its cost-performance route makes significant profit scaling difficult.

Xpeng has taken a different path. Its Q4 service and other income surged 122% year-on-year to 3.18 billion yuan, with a high gross margin of 70.8%. The core source is technology R&D services provided to Volkswagen, and Xpeng's collaborative models with Volkswagen were successfully mass-produced in March.

Xpeng Vice Chairman and Co-President Brian Gu's statement was more direct: Xpeng has achieved "a profit path distinct from traditional automakers."

This path follows Tesla's early logic—using carbon credits and technology licensing to make the income statement look good, buying time for the core car manufacturing business. Meanwhile, Xpeng's R&D spending continues to rise: Q4 R&D increased by 43% year-on-year to 2.87 billion yuan, and full-year R&D increased by 47% to 9.49 billion yuan. Earning money while spending more on R&D is fundamentally different from how NIO makes money.

NIO's Q4 profitability largely came from cost-saving.

William Li shared a story: A certain R&D project, quoted at 30 million yuan by the industry, had an internal quote of over 20 million yuan, which he rejected. It was ultimately completed for 2 million yuan with even better results. "Our company now takes accounting as a pleasure."

In 2025, NIO implemented the CBU (Cost Breakdown Unit) mechanism, calculating ROI for each project and collecting over 6,000 employee-submitted cost reduction suggestions. They promoted a "transparent supply chain"—supplier personnel, site, and energy consumption data are real-time integrated into NIO's system. Li Bin mentioned learning from Luxshare, which in turn learned from Apple.

The Q4 R&D and Sales, General & Administrative expenses as a percentage of revenue dropped sharply from 43.2% in the prior year period to 16%.

On the other hand, the concentrated release of ES8 sales—its sales proportion rose to 32%, with the average selling price per vehicle increasing from 221,000 to 253,000 yuan. NIO President Eddy Qiang revealed that the self-developed Shenji chip, once mass-produced, will reduce the cost per vehicle by over 10,000 yuan. Rapid cost control combined with high-priced vehicle volume led to a Q4 vehicle gross margin of 18.1%.

SPDB International noted in its latest research report that NIO achieved profitability as scheduled in the fourth quarter of last year, benefiting from the release of economies of scale, product structure optimization, and the continued effectiveness of strict cost controls, with quarterly operating expense ratios decreasing by 27.1 and 14.8 percentage points year-on-year and quarter-on-quarter, respectively.

To some extent, this was because NIO did not launch new vehicles in Q4 last year, except for the Onvo L60. This window of opportunity cannot be replicated in 2026; NIO is launching multiple models this year, including three all-new SUV models, as well as updated versions of NIO's "5566" and Onvo's L60/L90 models. This will be a significant year for NIO's product lineup.

Li Auto was the earliest to achieve profitability among the four, having been profitable for 11 consecutive quarters since Q1 2023. In 2025, coinciding with a product cycle transition, its full-year revenue declined by 22.3% to 112.3 billion yuan, and deliveries fell back to 406,000 units. At the Q3 earnings call, Li Xiang announced adjustments, returning to a startup model. With over 100 billion yuan in cash reserves, the thickest among the four, the L series will see a major refresh in 2026, with deliveries expected to rebound to about 488,000 units.

Four paths, four ways of earning. Leapmotor relies on extreme cost control, Xpeng on technology monetization, NIO on cost reduction plus product structure, and Li Auto on its financial reserves to weather the cycle.

Just Earned, Now to Spend

Management from several automakers told Yicai that the current price increases for bulk materials and memory chips are creating "huge pressure" on cost control.

William Li also stated at the earnings call: Memory chips are "hard to buy now, even with money."

Lithium carbonate prices soared from 75,000 yuan/ton in early 2025 to nearly 170,000 yuan/ton in January 2026, a 123% increase. Copper prices have exceeded 100,000 yuan/ton. More challenging are DRAM chips—AI data centers are competing with the automotive industry for production capacity, and Samsung and Micron are tilting their production lines towards more profitable AI chips.

Lei Jun mentioned in a livestream that the cost of in-car memory alone will increase by several thousand yuan this year.

A research report by UBS in early this year on raw material price increases indicated that, based on calculations, the combined cost of metal raw materials and chips alone has increased the cost of a mid-sized smart electric vehicle by 4,100 to 7,000 yuan.

This cost increase impacts each company differently. NIO, with an average selling price of 250,000 yuan, has a gross profit buffer of about 45,000 yuan. Leapmotor, with an average price of 110,000 yuan, has a buffer of only about 16,000 yuan—a 5,000 yuan increase would mean direct losses for a company earning 900 yuan per vehicle. Qu Yu estimates the impact to be between "one to ten thousand yuan."

Leapmotor CFO Li Tengfei has a slightly different approach. He stated that Leapmotor's response is not to suppress prices but to deepen its self-research and self-production. He believes raw material price increases are temporary and can be effectively offset through cost control. Leapmotor's full-year net profit guidance of 5 billion yuan remains unchanged. However, he frankly admitted that Q1 sales have significantly declined compared to Q4, and gross margins will see "a relatively significant decrease."

Costs are rising, and the market is contracting. Starting January 1, 2026, the purchase tax exemption for new energy vehicles will be halved, meaning consumers will pay an extra approximately 8,850 yuan for a 200,000 yuan car. In January, passenger car retail sales were 1.544 million units, a year-on-year decrease of nearly 14%. The CPCA forecasts domestic passenger car retail sales to be around 24 million units in 2026, a year-on-year increase of only 1%.

While the market lacks growth, the number of participants is increasing.

Li Xiang stated that the number of new mid-to-high-end new energy vehicles priced above 200,000 yuan this year will equal the total from the past three years. BYD's fast charging and thousand-kilometer range have pushed prices down to the 150,000 yuan range. Huawei's Luxeed H5 entered the mass market with a starting price of 169,800 yuan. Xiaomi is already profitable and expanding aggressively. In the first half, NIO, Xpeng, and Leapmotor mainly competed with each other; in the second half, they will face opponents on a completely different level.

Meanwhile, R&D investment cannot stop. Xpeng's AI R&D budget for 2026 is 7 billion yuan, and He Xiaopeng has been investing 300 million yuan per month for the past dozen months in the second-generation VLA. NIO's quarterly R&D spending of 2 to 2.5 billion yuan will not decrease. Li Auto plans to increase its R&D investment from 11.3 billion yuan last year to 12 billion yuan, half of which will be allocated to AI-related areas.

Auto analysts told Yicai that while investing in AI and autonomous driving has future monetization potential, it is unlikely to significantly contribute to revenue in the short term of one to two years.

In early March, BYD unveiled its megawatt fast charging, reaching 97% charge in 9 minutes, and plans to build 20,000 fast-charging stations by year-end. NIO plans to build 1,000 new battery swap stations this year, having invested over 18 billion yuan in charging and swapping infrastructure over the past 11 years. The debate between battery swapping and fast charging routes will continue in 2026.

NIO's full-year financial report best illustrates its situation in 2026. The target sales growth is 40% to 50%. The Q1 guidance is 80,000 to 83,000 vehicles, with revenue guidance nearly 10 billion yuan less than Q4's 34.6 billion yuan. William Li himself said the first-quarter passenger car market is "very challenging." Excluding the first quarter, the remaining three quarters require an average monthly delivery of over 41,000 vehicles—the historical peak of Q4 must become the norm, sustained for three consecutive quarters.

Leapmotor is also increasing its investment. Li Tengfei said 2026 should be a breakthrough year for Leapmotor's intelligent driving, aiming to reach the industry's first tier by year-end. R&D expenses will see a "very significant increase" compared to 2025. A company known for cost control is now investing heavily in the most capital-intensive areas.

New Questions After a Decade

NIO, Xpeng, and Li Auto were established between 2014 and 2015. They survived the first five years on financing. NIO nearly collapsed in the year it went public in 2018. For several years in between, they relied on losses to gain scale; NIO alone lost a cumulative 109.2 billion yuan from 2018 to 2024. In the 2022-2023 elimination rounds, WM Motor collapsed, HiPhi halted, and Aiways disappeared. By 2025, apart from Xiaomi, all other new car manufacturers had been established for ten years.

Ten years, and they survived.

Li Yanwei, a member of the expert committee of the China Automobile Dealers Association, analyzed for Yicai that for emerging automakers, achieving profitability is not just a change in financial metrics but a fundamental proof of the sustainability of their business model.

However, the rules of the game changed in 2026. Previously, survival depended on financing and market grabbing; now it's about profitability and technological investment. Money must be earned internally, and even then, it cannot be hoarded. Xpeng is investing in embodied intelligence and flying cars, Li Auto is venturing into AI glasses, and NIO's self-developed second-generation Shenji chip has successfully passed the tape-out stage. Zhu Jiangming says 1 million vehicles is the life-or-death line for new carmakers, and Leapmotor aims to cross it this year.

All companies are simultaneously rolling out new models. Leapmotor has four this year: the A10 launched on March 26, and the D19 will launch in mid-to-late April, marking Leapmotor's first entry into the 300,000 yuan price range. Li Tengfei said the sales ratio of existing models to new models will be about six to four, with 400,000 out of 1 million vehicles relying on new models for sales. NIO's ES9 technology preview is scheduled for April 9, featuring steer-by-wire and the Tianxing chassis. Xpeng is expanding its range-extended lineup, with the G7 super range-extended, the 2026 G6, and G9 set for intensive launches.

New cars are ammunition, but also expenses. Li Tengfei admitted that Leapmotor's marketing investment in 2026 will be higher than in 2025, but per-vehicle marketing costs will "decrease significantly."

Data from the National Bureau of Statistics shows that in Q1 2025, the profit rate of the automotive industry was only 3.9%. Cui Dongshu, Secretary-General of the CPCA, also pointed out that the profit margins of Chinese automakers remain low compared to international leading companies.

Overseas markets offer the most certain growth. In January, China's passenger car exports reached 576,000 units, a year-on-year increase of 52%. Xpeng is cooperating with Magna in Europe to start localized production. Leapmotor is making even bigger moves—targeting 100,000 to 150,000 overseas sales this year, with over 800 European dealerships. The B10 at its Spanish factory will start production in October, and it is expanding in South America, focusing on Brazil. Li Tengfei said Leapmotor has a clear agreement with Stellantis that the first three to four years are an investment period, and no additional profit is expected from overseas in 2026. The priority is to capture market share.

NIO's Firefly brand is also going global. William Li stated in an internal letter that the company plans to enter 40 countries and regions cumulatively this year. However, tariff barriers are increasing, and geopolitical risks remain. Going global is an opportunity, but also another path requiring significant expenditure.

NIO's 2026 sales target is 40% to 50% growth. The Q1 guidance is 80,000 to 83,000 vehicles, and William Li himself said the first-quarter passenger car market is "very challenging." Excluding the first quarter, the remaining three quarters require an average monthly delivery of over 41,000 vehicles—the historical peak of Q4 must become the norm, sustained for three consecutive quarters.

Li Yanwei analyzed that when leading emerging automakers enter the profitability range, the gap in competitive resources between them and the trailing loss-making brands will expand exponentially. Brands unable to achieve profitability will be forced to exit the market or seek mergers and acquisitions due to cash flow pressure, accelerating industry consolidation.

More than a century of global automotive industry history has repeatedly proven one thing: many companies can build good cars, but few can make sustained profits. Ford, GM, and Toyota have weathered economic cycles not because of outstanding products in a particular year, but because they established a system capable of generating positive cash flow even in adverse conditions. The Q4 financial reports from China's emerging automakers indicate they have touched the threshold, but the system has not yet been built.

This threshold does not allow for a one-time leap.