China's auto and electric-vehicle market is bracing for a challenging 2026 as sales and profit margins face mounting pressure, according to Bank of America analyst Ming Hsun Lee. The bank has cut its 2026 sales and earnings estimates for most auto manufacturers, citing weaker demand and rising costs.

Lee warns that intensified competition, higher EV purchase taxes, and reduced trade-in subsidies will weigh on sales volume, particularly for lower-priced vehicles. At the same time, rising raw material prices for memory chips, batteries, and metals are expected to squeeze OEM profitability, prompting downward revisions to this year's earnings forecasts.

The report highlights that automakers will need to increase investment in advanced driver assistance and smart cabin technologies to remain competitive, even as profit pressures mount. Despite the overall slowdown, BofA expects EV exports to grow 40% in 2026, compared with just 7% growth in domestic EV sales, with Europe already receiving Chinese-built models like the Cupra Tavascan.