Analysts warn: Nio, Xpeng, and Li Auto face zero chance of survival alone

Bad news for Chinese start-ups. As China’s electric vehicle market races toward saturation, industry insiders are sounding the alarm for the country’s well-known EV brands.

Nio, Xpeng, and Li Auto, once hailed as the darlings of China’s new energy vehicle (NEV) boom, are now facing warnings from analysts and executives that their independent survival chances are effectively zero without drastic action.

At the recent Tencent News panel, Auto Market Hot Topics+, automotive engineering professor Zhu Xican of Tongji University delivered a grim prognosis for the trio. “If none of the three EV start-ups go bankrupt, their probability of existing independently is zero,” Zhu declared. 

‘You will die’

A bold statement, but where does it come from? His assessment is based on scale economics: any EV manufacturer producing fewer than two million vehicles annually cannot survive long-term due to unsustainable R&D costs.

“Without heavy investment in R&D, technological progress halts. If you slow innovation while carrying high costs and low volume, you will die,” Zhu stated bluntly.

This puts Nio, Xpeng, and Li Auto on a collision course with consolidation over the next three years. Zhu believes the three must merge, restructure, or partner to remain viable.

The panel, which included other industry experts like Li Yanwei of the China Automobile Dealers Association, emphasized that brands surviving on volume below two million units will struggle in a landscape dominated by cost-efficient giants like BYD. Last year, BYD sold over 4.2 million vehicles, widening the gap between industry leaders and challengers.

Five to seven survivors

Brian Gu, chairman of Xpeng, echoed this sentiment from the floor of the Shanghai Auto Show. “The sector is highly competitive, and not everyone will survive,” Gu told reporters. He pointed to the flood of over a hundred brands entering the market, spurred by Beijing’s support for electrification. 

However, Gu predicted consolidation would reduce this number to five to seven major players. “Survival now depends on more than production volume or manufacturing quality.”

It’s about AI, software, and mobility strategies for the decade ahead,” Gu said. Xpeng holds the better card, as Volkswagen owns it for almost 5%, which sets the door ajar for a deeper cost-shaving collaboration. On its side, Nio has partnered with Geely, which is currently restricted to battery swapping technology.

Several EV mavericks like Aiways, HiPhi, and Byton have already shuttered operations. Meanwhile, larger automakers like SAIC, BYD, and Geely are engaged in an aggressive price war and technology race. These tighten margins and raise the bar for survival.

Zhu Jiangming, president of Leapmotor and Stellantis’s Chinese partner, suggested that the “preliminary round” of competition is over and that the industry is entering what he calls the “final phase.”

Challenging scale requirements

Even as new entrants like Huawei and Xiaomi enter the EV market, the scale requirements remain challenging, and the brands need to grow their image.

Xiaomi’s SU7, for example, has enjoyed robust sales because of its features and the brand’s reputation, which crystallizes consumer confidence. Tesla benefits similarly from its global stature, with strong resale values reinforcing buyer trust, at least in China.

China’s government is also signaling support for consolidation. Gou Ping, a senior figure in China’s state asset regulator, recently called for a strategic restructuring of state-owned automakers to pool R&D, production, and marketing efforts into global champions. A merger has been rumored between Changan and Dongfeng. This would create the world’s fifth-largest car group.