Gavekal Technologies: Briefing

China’s passenger car market is having a terrible 2026, and electric vehicles for once are no exception. Prices and margins are under pressure. Yet despite all that, the market is not consolidating—quite the opposite. What makes it all possible is exports, which now account for a third of Chinese EV makers’ unit sales. The question is how long international markets will be willing to absorb the rising tide of Chinese imports.

Investors have cooled on China’s biotechnology sector, after a spectacular run-up in Hong Kong biotech stocks in early 2025. This is a needed correction: China’s biotech companies are technologically strong, but commercially immature. Also in today’s China Tech Brief: drones and EVs.

China’s latest five-year plan for energy disappointed many analysts because of its unambitious targets for scaling back fossil fuel use. This misses the point. The plan is important because for the first time, Beijing is formally committing to an energy system based mainly on non-fossil fuels, with traditional coal, oil and gas as backup stabilizers. Achieving this goal will take another couple of decades, but policymakers are already starting to look beyond brute additions of renewables capacity to the efficiency measures that will be required for success.

Tesla’s market capitalization is by far the biggest among global automakers, mainly because it has sold itself as a leader in AI—not just in cars, but for humanoid robots as well. To turn its AI vision into reality, it needs China. Its Shanghai gigafactory enabled Tesla to scale up electric vehicle production; to scale up robotaxis and humanoids, it will have to figure out how to operate in both the US and China even as the two countries wall off their AI ecosystems from each other.

Conventional wisdom has held that while China’s AI buildout is constrained by lack of access to advanced chips, the US will be slowed by the scarcity and cost of electricity. Solving the power constraint is indeed a problem: AI data centers are suddenly adding a lot of new electricity demand on a system that has not grown in two decades. But aside from building new power plants and transmission lines—a long slog—there is a lot the US can do to squeeze more juice out of the current infrastructure.

Europe fears that subsidized and efficient Chinese high-tech companies will de-industrialize the continent. But the “second China shock” is arguably even more of a threat to northeast Asia, where China’s lead in batteries, electric vehicles and solar has Tokyo and Seoul incumbents worried that machine tools, robots and displays could be next. But Japan and South Korea should be able to hang on to large and profitable chunks of their industrial bases, thanks to both technological factors and geopolitics.