Summary of Key Points
The profit margin in China's automotive industry has dropped from 7.8% to 3.4% over the past decade, nearly halving, with the profit margin for vehicle manufacturing even lower at just 1.5%, marking an era of minimal profits. The reason is intense competition: more than 130 brands are vying for market share, and over 500 new models were launched in the first half of the year, leading to significant homogenization among vehicles. At the same time, costs have risen faster than revenue, with upstream raw materials and chips increasing costs, and price wars at the retail level further squeezing prices. The industry landscape has also changed, with leading companies accounting for 80% of sales. Domestic brands are gaining momentum by transitioning to new energy technologies, potentially leaving only a few large-scale manufacturers surviving in the future.
I. Automotive Profit Margin Halved: From Profits to Losses
The automotive industry used to be highly profitable; in 2017, for every 100 yuan earned from selling cars, 78 yuan was net profit. However, in the first five months of 2026, the industry's profit margin was only 3.4%, meaning that for every 100 yuan earned, only 3.4 yuan remained as profit—more than a 50% decrease in ten years. The situation is even worse for vehicle manufacturers, with a profit margin of just 1.5%, effectively resulting in “high effort with little return.”
To put this into perspective using bicycle manufacturing: in the first five months of this year, the revenue from the entire supply chain for each bicycle was about 343,000 yuan, but costs accounted for 305,000 yuan, and taxes amounted to 27,000 yuan, leaving a gross profit of only 12,000 yuan—a 16% decrease from last year. In contrast, other industries such as mining and chemical fibers saw profits increase by 162% and 136%, respectively, while the automotive industry's profit margin fell by 19.8%.
II. Why Such Fierce Competition?
There are over 130 automotive brands in China, with an average of four brands per province, not including imported ones. The situation was even more extreme in the first half of this year, with more than 500 new models launched, averaging three new cars released daily. Everyone aims to be “large and comprehensive,” covering all segments from sedans to SUVs to electric vehicles. As a result, vehicles look similar and have similar functions, leaving manufacturers to compete mainly through price cuts.
The vice president of the China Association of Automobile Manufacturers (CAAM) notes that the automotive industry benefits from “economies of scale”—the more cars produced, the lower the cost per vehicle in terms of research and development and supply chain. However, with so many brands and a variety of new models, no single company achieves significant sales volumes, making it difficult to reduce costs and thus reducing profits. Some companies continue to launch new models despite poor sales performance, only exacerbating their losses.
III. Manufacturers Under Pressure on Both Sides
Automakers face increasing costs that outpace revenue growth. Upstream raw material prices (such as lithium for batteries and chips) are rising, and consumers are not willing to accept higher prices; they will switch to other brands if a company raises its prices.
Data shows that while the automotive industry's revenue increased by only 1.4% in the first five months of this year, costs rose by 2.3%, and taxes increased by 7.3%. With revenue growing slowly and costs rising rapidly, it’s no wonder profits are declining. Employees in the industry say, “It’s a matter of seeing who can’t hold on longer before raising prices, but whoever does will lose customers; they have no choice but to endure.”
This is especially true for new energy vehicle manufacturers, many of which do not produce their own batteries and are at the mercy of upstream suppliers, leaving them with little leverage over battery prices and greater profit pressures.
IV. Changing Industry Landscape
The industry is becoming increasingly polarized, with leading companies dominating sales (80% of total sales). Domestic brands are making significant progress, with their market share reaching 64.7% in the first half of this year, nearly 70% in June, compared to less than 40% for joint-venture brands. This is because domestic brands are transitioning to new energy technologies more quickly and understand Chinese consumer preferences for advanced features like voice control and autonomous parking. Joint-venture brands, on the other hand, are lagging behind with slower innovation and slower responses to market changes.
V. Will Only a Few Survive in the Future?
The pace of industry consolidation is accelerating, and smaller brands are at significant risk. He Xiaopeng, CEO of Xpeng Motors, predicts that only about five large-scale domestic automakers will remain in China, with the vast majority of brands disappearing.
Leading companies like BYD and SAIC are seeing increased sales despite thin profit margins due to their scale. Smaller brands, with lower sales volumes and higher costs, face either acquisition or closure. Some new entrants have already started laying off employees and reducing their product lines to stay afloat.
In summary, the automotive industry has shifted from a period of easy profits to one of tough competition. Only those companies that can control costs and keep up with the trends in new energy and intelligent technology will survive in the future.