Objective: With rapid technological advancements and continuous restructuring of the global automotive industry, innovation has become a central factor in industrial upgrading and value chain repositioning. However, existing studies often focus on industrial growth and technological change separately, overlooking how innovation also affects export performance, production foundations, and regional integration into global value chains. Against this background, this paper investigates the role of innovation in China's automobile manufacturing industry, focusing on its dual effects on industrial evolution and spatial restructuring. It examines whether innovation functions merely as a growth driver or as a structural mechanism linking industrial upgrading and spatial reorganization. Methods: This study constructs a multi-source dataset combining the China Industrial Enterprise Database, firm registration data, the Chinese patent database, and the United Nations Comtrade database. The empirical strategy proceeds as follows. First, a descriptive analysis is conducted to characterize the long-term evolution of China's automobile industry since the reform and opening-up, focusing on changes in production scale, ownership structure, and spatial distribution. Second, the industry's evolution is analyzed through a global value chain framework, highlighting its transition from joint ventures to an innovation-driven structure led by new energy vehicles and intelligent connected technologies. Third, econometric models are used to evaluate how innovation capacity affects export scale, comparative advantages, regional production capacity, and the likelihood of regional entry into the automotive value chain. Innovation is classified into basic and applied innovation types to capture heterogeneous effects, with spatial interaction terms included to consider potential regional spillover effects. Results: The empirical findings suggest several key patterns: First, innovation capacity is positively associated with multiple dimensions of industrial upgrading, leading to stronger export performance and more stable comparative advantages in international markets. Second, innovation boosts regional production capacity, thereby increasing the likelihood of regional participation in the automotive value chain. This suggests that innovation impacts firm-level performance and integrates regions into global production networks. Third, at the spatial level, innovation helps facilitate the diffusion of automotive industry activities across regions, leading to a more dispersed yet increasingly interconnected industrial spatial structure. Fourth, significant heterogeneity exists between types of innovation. Basic innovation tends to generate longer-term and broader spatial spillover effects, whereas applied innovation is more closely associated with short-term improvements in regional performance. Fifth, innovation is closely associated with emerging sectors such as new energy vehicles, where technological advancement and market expansion reinforce each other. Conclusions: Overall, innovation should be understood not only as a driver of industrial growth but also as a structural mechanism connecting industrial upgrading and spatial restructuring. Innovation supports China's automobile industry's transition from extensive expansion to high-quality development and enhances its position in global value chains. The differentiated effects of basic and applied innovation suggest that innovation policy should balance long-term capability building with short-term application support. These findings provide empirical evidence for understanding the trajectory of China's automobile industry and implications for innovation-driven development and value chain optimization.