Summary of Key Points
The automotive industry in 2026 faces a dilemma of being squeezed from both sides: rising costs of upstream materials such as chips and lithium carbonate, coupled with downstream regulatory measures to curb price wars, have significantly compressed car manufacturers' profits (with industry profit margins plummeting from 6.1% to 3.2%). Only a few companies are making a profit through three strategies: brand premiumization (such as Geely's Extreme Karma and Seres' Askar), export markets, and self-sufficiency in core components (like BYD). The traditional business models—where larger scale leads to higher profits, lower prices result in greater sales, and manufacturing cars automatically generates earnings—no longer apply. The industry is polarizing towards either extreme efficiency or extreme brand trust.
I. Pressure from Both Sides: Upstream Profiting, Downstream Blocking Retreat
Car manufacturers are caught in a situation similar to that of sandwiched cookies, with profits being extracted from both ends:
- Upstream price hikes: The cost of storage chips has increased from 20 yuan to 100 yuan, and lithium carbonate from 80,000 yuan per ton to 180,000 yuan per ton, raising the cost per vehicle by 6,000-14,000 yuan. For companies with a gross margin of only 10%-15%, this equates to a loss of one-third of their profits.
- Downstream regulation: The Ministry of Industry and Information Technology and the State Administration for Market Regulation have met with car manufacturers, prohibiting sales below cost prices—preventing the previously effective strategy of losing money to gain market share.
Result: In the first quarter, 6 out of 11 listed car companies suffered losses, with total profits amounting to 8 billion yuan, compared to CATL's profit of 20.7 billion yuan alone. The industry's average gross margin per vehicle has dropped from 23,000 yuan to 14,000 yuan. Seres' chairman even admitted that the cost of the Askar model has increased by 15,000-20,000 yuan.
II. Who Is Making Money? Survival Strategies of Three Types of Car Companies
Only a few companies have found viable paths:
1. Brand-driven: Profiting from premiumization:
- Geely: The Extreme Karma 9X, with an average price of over 530,000 yuan, sold 22,000 units in its first three months, accounting for half of Geely's total sales. Its average profit per vehicle was 6,400 yuan, and its profit growth rate (36%) outpaced revenue growth (25%) in 2025.
- Seres: The Askar M9 is highly profitable, with a profit of 189,000 yuan per unit (equivalent to 4-6 units of the M5/M7). Last month, over 8,000 units were delivered, with the high-end version accounting for 80% of sales.
2. Scale-driven: Reducing costs through volume:
- BYD: Sold 700,000 units in the first quarter and negotiated lower prices for parts due to its large scale (for example, steel plates at cheaper rates). Its average profit per vehicle was 5,800 yuan. In 2025, it plans to sell 4.6 million units, with total procurement costs exceeding 430 billion yuan, giving it unparalleled bargaining power.
- ZeroRun: By building 17 component factories, it reduced fixed costs and turned a loss into a profit last year (average profit per vehicle: 905 yuan), becoming the only emerging company to be profitable.
3. Trial-and-error: Unstable profit models:
- Xiaomi: Profitable last year but lost 3.1 billion yuan in the first quarter due to lower sales of its high-profit SU7 Ultra model and increased production of low-profit vehicles, coupled with rising material costs.
III. The Three Keys to Profits: Premiumization, Overseas Markets, and Self-Sufficiency
Companies that continue to make money have followed these three strategies:
1. Premiumization: Selling cars at higher prices:
- NIO's ES8 has a gross margin of over 20%. The ES9 was delivered in excess of 10,000 units within 30 days of its launch, with an average price of 443,000 yuan. The Extreme Karma 9X increased the brand's average price from 240,000 yuan to 360,000 yuan, surpassing BMW and Audi in terms of premium value. High-end models have a gross margin 10% higher than compact cars, acting as profit amplifiers.
2. Overseas markets: Expanding profits in different regions:
- Chery focuses on Russia and Latin America (mainly for fuel vehicles), where the same model sells for 30%-50% more abroad due to lower competition. In the first quarter, exports accounted for over 60% of sales, generating 4.17 billion yuan (more than BYD's 700,000-unit sales). For 2025, overseas revenue is expected to exceed domestic revenue for the first time, with a net profit of 19.5 billion yuan.
3. Self-sufficiency in core components: Controlling key aspects of production:
- BYD has an 85%-90% self-sufficiency rate. Its own blade batteries are 25% cheaper than purchased ones, and its custom-designed chips cost less than half of market prices. When material costs rose, BYD's battery costs only increased by 8%, allowing it to lower prices (e.g., the Dolphin model by 14,000 yuan) while maintaining a gross margin of 20.49%.
IV. The Old Logic No Longer Works: The Automotive Industry Is Changing
Traditional assumptions no longer apply:
1. Larger scale leads to higher profits? Wrong! Despite a tenfold increase in new energy vehicle sales, industry profit margins have dropped from 6.1% to 4.1%. In the fuel vehicle era, larger scale reduced costs; now, selling more units may merely result in competing with other companies and diluting profits.
2. Lower prices lead to greater sales? Wrong! According to Avita CEO data, technology influences purchasing decisions seven times more than price. After years of price wars, the difference in price at the same level is only a few thousand yuan, and consumers value features like smart driving and battery range more.
3. Manufacturing cars automatically generates profits? Wrong! Airebop reports that only 7 out of 30 new energy car companies will break even by 2030. The industry is polarizing towards either extreme efficiency (large scale and low costs) or extreme brand trust (consumers willing to pay a premium for a brand).
Conclusion
2026 may not be the worst year for the automotive industry, but it has completely reshaped how profits are distributed. The profit pool for mid-range cars is shrinking, and only those companies that can access uncompetitive markets (premium segments, overseas markets, or self-sufficiency in key components) will survive. The future ten-year landscape lies in this polarization between extreme efficiency and brand trust.