The business model of new energy vehicles is about to undergo a major change. Will they lose money on hardware but make money from software?

New energy vehicles are no longer just a means of transportation; they are more like a mobile terminal for rolling charges. For new energy vehicle companies, doing a good job in hardware at low cost is just the basic skill. Only by combining software and hardware to form a resonance can there be greater opportunities.

The suspension of the "national subsidy" in December made many new energy vehicle companies suddenly pessimistic. However, in mid - December, the market seemed to welcome a "turning point".

The Central Economic Work Conference has set the tone that the national subsidy will continue. We are just waiting for the specific details of the "national subsidy" for trading in old cars for new ones in 2026. It is generally expected that the subsidy amount may be moderately increased on the basis of 2025. At the same time, in 2026, the purchase tax for new energy vehicles will be officially levied. It is estimated that buyers will have to pay about 10,000 yuan more for a car. To prevent people's willingness to buy cars from wavering, mainstream car companies will take some short - term "guarantee" and remedial measures.

Actually, even without the above variables, the downward price trend of new energy vehicles is very clear. According to the data of the Passenger Car Association, in September 2025, the average price of new energy passenger cars in China dropped to 158,000 yuan. Compared with the average price of 184,000 yuan in 2023, the decline rate in two years was as high as 14%. This also promoted the penetration rate of new energy vehicles to stabilize above 55% since August 2025.

In response, Chen Feng (a pseudonym), who has worked in a new - force car - making enterprise for many years, analyzed for Lu Jiu Business Review from the perspective of consumer psychology: "In the past three years, due to the 'involution' in the industry, car prices have dropped too quickly. For the same car, you might have to pay tens of thousands of yuan more if you bought it last year than this year. The earlier you buy, the more you lose. This will inevitably bring a 'loss aversion' emotion to consumers. More importantly, when the penetration rate of new energy vehicles has exceeded 50%, 'competing on price' no longer makes much sense. In the future, consumers may care more about fast charging, long - range driving, and intelligent driving levels. If your intelligent driving system can make users feel that 'this car is more reliable than I am when driving', this kind of experience cannot be exchanged for by subsidies and price cuts."

The actual impact of low prices and subsidies on the sales of new energy vehicles is getting smaller and smaller. Mainstream car companies are accelerating into the stage of "competing on internal strength".

01 The test is quietly left for tomorrow

Chen Feng said bluntly, "In the past 10 years, subsidies and price wars have been closely associated with the sales growth of new energy vehicles. In the early stage of the new energy vehicle market, since the penetration rate was not that high, providing some consumer subsidies could significantly stimulate new demand. But today, the penetration rate of new energy vehicles (new car sales) in China has exceeded that of traditional fuel vehicles. Giving subsidies now may very likely overdraw demand in advance."

Various signs indicate that the real challenge for new energy vehicles has arrived.

The latest data from the Ministry of Commerce shows that in the first 11 months of this year, more than 11.2 million old cars were traded in for new ones, accounting for more than one - third of the total car sales in the same period. With the superposition of "national subsidy + purchase tax discount + local subsidy", consumers can usually save twenty or thirty thousand yuan. However, in the second half of 2025, due to the early consumption of national subsidy funds and most local subsidies being subject to quota control, once the subsidy intensity weakened slightly, it directly impacted the overall car sales. According to the data of the Passenger Car Association, the year - on - year growth rate of car sales declined rapidly in July 2025. In October, there was even an overall negative growth, and in November, there was a significant decline.

After communicating with many people in the car industry, Lu Jiu Business Review found that because the purchase tax for new energy vehicles will be levied starting from 2026, there should have been a tail - end effect at the end of 2025, and many buyers would have rushed to buy in advance. But at present, this has not happened. In November, the number of new orders in the whole industry declined significantly. People are no longer "buying at the sight of discounts" but are more inclined to wait and see.

More challengingly, the previous subsidies and tax incentives are leaving the test for tomorrow. Even if the subsidies are increased in 2026, the effect may not be better than in 2025. After a large - scale trade - in of old cars for new ones, the demand has been released in advance, and users' willingness to replace cars has decreased. There is no need to replace a not - so - old car just for a little subsidy, and besides, they have to pay an extra tax for a new car.

For new energy vehicle companies, the survival of the fittest is cruel but also a reality.

02 How much room is there for cost reduction?

At this moment, the new energy vehicle market is transitioning from "competing on price" to the stage of "breaking away from involution and strengthening internal strength".

The "national subsidy" and purchase tax for new energy vehicles have little impact on a few leading companies in the industry (BYD, Tesla). However, for new - force car - making companies and many traditional automobile manufacturing enterprises in the process of transformation, it may be a more realistic survival issue. There are mainly two reasons for this:

Firstly, the specific rules of subsidies are intensifying the differentiation within the new energy vehicle industry. Since the subsidy amount is directly linked to the vehicle's cruising range parameter (for example, the cruising range of pure - electric vehicles is required to reach more than 500 kilometers), which is determined by the battery, car companies such as BYD and Tesla benefit the most because they produce their own batteries. Many car companies that need to purchase batteries externally still have to rely on the battery suppliers to benefit from the subsidy policy.

Secondly, the overall profit margin of the Chinese automobile industry is too low. The data disclosed by Cui Dongshu, the secretary - general of the Passenger Car Association, shows that in October 2025, the sales profit margin of the automobile industry was 3.9%, a decrease of 0.5 percentage points compared with September, reaching the lowest level in the same period in five years. From January to October 2025, the sales profit margin of the automobile industry was 4.4%, better than in 2024 but still at the second - lowest level in five years. The automobile industry is already a meager - profit industry. A little more influence from the policy side may put some car companies to the survival test.

In the past three years, while the products of mainstream car companies such as BYD, Geely, and Chery have been continuously reducing prices, their profits have instead increased significantly. The number of new - force car - making companies has decreased from more than 60 to less than 10. The reshuffle of the industry is very obvious.

Wang Cheng (a pseudonym), a professional investor who has long been concerned about the new energy vehicle industry, believes that "Today, mainstream new energy vehicle companies can continue this trend without policy support, as product price cuts can lead to a significant increase in corporate profits."

As early as 2023, after several rounds of price cuts, the profit per Tesla electric vehicle was three times higher than that of Toyota. Because many established redundant costs can actually be cut. By calculating the "idiot index" (idiot index = finished product price/raw material cost), the parts with inflated costs can be identified.

For example, a sensor with a raw material cost of 6 US dollars has an inflated finished product price of 60 US dollars. There is a lot of room for optimization here. By "learning from other industries", the manufacturing cost can also be significantly reduced. For example, the parts of toy cars are integrally formed. Tesla has tried to integrally die - cast more than 70 parts of the rear floor of the car into one, which not only greatly improves efficiency but also saves hundreds of welding robots. For example, after seeing the design of "the wing is the fuel tank" in airplanes, Tesla directly made the battery part of the chassis, reducing the vehicle weight by more than 10% and increasing the cruising range.

BYD has won a greater cost advantage through vertical integration of the entire industrial chain. BYD manufactures almost everything from batteries, frames, air - conditioners, airbags, reversing radars to door handles, seat belts, steering wheels, and lamps. It can manufacture "all automobile parts except glass, tires, and steel plates" by itself.

UBS once disassembled a BYD Seal and compared it with the Tesla Model 3. The conclusion was that even compared with Tesla, BYD still has a cost advantage of about 15% because it controls 75% of the parts, squeezing out almost all the profits of middlemen.

In large - scale manufacturing, the real cost may be as small as a plum pit. Especially for the leading companies in the new energy vehicle industry, the supply chain has been continuously matured during the process of competing on internal strength, resulting in a significant reduction in parts costs. This is a natural result of the competition in the new energy vehicle industry and has little to do with the amount of purchase tax levied and the amount of consumer subsidies provided.

03 Could software revenue be a new profit point?

In 2026, the new energy vehicle market will face a very strange situation. On one hand, the subsidies continue; on the other hand, the tax incentives are declining. It will be much more complicated to calculate how to save money when buying a car than before. But one thing is very certain: the business model of new energy vehicles has changed, and the "national subsidy" can hardly help you save money.

After all, the purchase tax and "national subsidy" for new energy vehicles are all aimed at the vehicle hardware. But nowadays, the business model of new energy vehicles is inclining towards making money from software. For example, Tesla electric cars were initially big toys for the rich, but they quickly transformed into a civilian electric vehicle brand. By continuously reducing prices to increase sales volume, the company can earn less from hardware and more from APPs and autonomous driving capabilities.

Take Xiaomi cars as an example. In the third quarter of 2025, the gross profit margin of Xiaomi cars reached 25.5%, which was a significant improvement compared with the same period of the previous year. Undoubtedly, the software part has made a significant contribution to Xiaomi cars' high gross profit margin. The high - level intelligent driving system (including urban NOA, automatic parking, etc.) can be purchased at one - time for 18,000 - 26,000 yuan, which is similar to software business. The in - car entertainment services such as games and audio - visual subscriptions are charged annually, just like a large - sized iPad with a steering wheel and wheels. Especially, with the linkage of Xiaomi's AIoT ecosystem, the comprehensive software revenue from in - car application sharing, data packages, and OTA (over - the - air vehicle upgrade) has contributed nearly one - fourth of the total gross profit, and this proportion is still increasing.

In the future, don't think you're just buying a new energy vehicle. In fact, you're being pulled into a long - term paying user ecosystem. The subsidies and low prices when buying a car are more like a final push to get you in quickly.

New energy vehicles are no longer just a means of transportation; they are more like a mobile terminal with rolling charges. For new energy vehicle companies, doing a good job in hardware at low cost is just the basic skill. Only by combining software and hardware to form a resonance can there be greater opportunities.

As Han Tixin, the centennial curator of new energy vehicles, asserted to Lu Jiu Business Review: "The future winners must have both the genes of the manufacturing industry and Internet thinking; they must understand both users and products; they must be sustainably profitable rather than burning money for scale."

This article is from the WeChat public account “Lu Jiu Finance” (ID: liujiucaijing69). Author: Zhou Qian. Republished by 36Kr with authorization.