Summary of Key Points
In the summer of 2026, global automakers have embarked on a "downsizing" campaign: Volkswagen plans to cut up to 50% of its models, Nissan will reduce the number of models from 56 to 45, Toyota has discontinued unproduced electric vehicles, and domestic brands such as Changan are abandoning the strategy of producing a large variety of products in order to gain market share. The underlying reason is that the automotive industry's profits are being squeezed by both upstream suppliers (rising raw material costs) and downstream competitors (price wars), coupled with declining sales volumes. In this competitive environment, having too many models actually consumes more resources. Although different companies are adopting different approaches, the overall logic remains the same: shifting from a strategy of producing a wide range of products to focusing on a smaller number of high-quality, best-selling models.
Why Are Automakers Suddenly Cutting Models? — Profits Have Been Drained to the Point of Bareness
Just how low have automakers' profits become? From January to May 2026, China's automotive industry's profit margin was only 3.4% (earning 3.4 yuan for every 100 yuan in sales), nearly half lower than the industry average of 6.1%. The situation is even worse for vehicle manufacturing, where profit margins have dropped from 5% three years ago to 1.5% (earning only 1.5 yuan for every 100 yuan in sales).
Where did the profits go?
The reasons are twofold:
- Rising Costs from Upstream Suppliers: The price of lithium carbonate has soared from a low level to 200,000 yuan per ton, while prices of automotive-grade chips and copper have increased by over 40%, and other raw materials have also risen significantly. These costs are all passed on to automakers.
- Fierce Price Wars Downstream: From January to May, 77 car models saw price reductions, with an average decrease of 13.1%. Fuel-powered vehicles, due to high inventory and low demand, experienced even greater price cuts (with some used joint-venture models offering discounts of over 20%). New energy vehicles also saw price drops, with luxury brands like Land Rover being available for as little as 160,000 yuan.
- Declining Sales Volumes: Domestic passenger car sales in the first half of the year fell by 20.2% year-on-year. Although new energy vehicles account for over 60% of the market, fuel-powered cars are struggling to sell.
In this context, if a car cannot be sold in large quantities, it results in losses. For example, if a model only sells a few hundred units per month, the costs of research and development, production, and marketing are spread over so few units that each sale results in a loss. Therefore, cutting models is a necessary step to stop the financial hemorrhage.
How Are Different Automakers Cutting Models? — Unique Strategies for Downsizing
Although all automakers are reducing their product lines, they are doing so in various ways:
- Volkswagen: Aggressive cuts, even affecting classic models. The company plans to discontinue up to 50% of its models, including the Touareg, Audi A1/Q2/TT/R8, and Porsche 718. Profit margins plummeted by 54% in 2025, and sales in the Chinese market declined by 20%. Volkswagen believes that its large scale has become a burden; it will focus on high-profit, best-selling models like the Lavida and Tiguan, while also reducing optional features and production capacity by 9 million units.
- Nissan: A more gradual approach, focusing resources on creating best-sellers. Nissan will reduce the number of models from 56 to 45 and concentrate 80% of its sales on three core models (sharing a common platform), with the goal of increasing sales per vehicle by 30%. The strategy is to focus on a few high-quality models rather than spreading resources across many mediocre ones.
- Toyota: Stopping unproduced electric vehicles. Toyota has abandoned the Lexus LF-ZC electric car, which was scheduled for production in 2026, due to changes in market demand and slower progress with electrification efforts. It decided to stop investing to avoid further losses.
- Domestic Brands: Moving from a multi-brand approach to consolidation. Changan will eliminate low-end models priced below 50,000 yuan (reducing sales by 70,000 units but saving resources), and reduce the number of models from 63 to 36 over the next five years, with the aim of developing six global best-sellers each selling over 300,000 units. Other brands such as Great Wall are integrating their products under the GWM brand (including Harvester, Ora, and Great Wall Cannon), Geely is consolidating its models under a single platform, and Seres is shedding less-profitable brands like Blue Electric.
The Changing Logic of the Industry — From "Many Models to Fewer, Higher-Quality Ones"
In the past, automakers believed that producing a wide range of products would give them a competitive advantage. For example, they would offer multiple models in each segment (SUVs in different sizes) to appeal to all customers. However, today:
- Competitive Stagnation: The automotive market is no longer growing, and with a limited number of potential buyers, having too many models only leads to increased competition and lower sales volumes, resulting in higher costs per unit.
- Severe Homogenization: Many models look similar and have similar features, making it difficult for customers to make decisions, leading to wasted research and development efforts by automakers.
- Thin Profits: Every penny must be spent wisely; companies can no longer afford to support unprofitable models.
The new approach is to focus resources on models that can sell in large quantities, such as比亚迪's Qin PLUS and Tesla's Model Y. When a model sells tens of thousands or even millions of units, the costs are spread over a larger base, resulting in higher profits.
Can Cutting Models Solve the Problems? — It's Not a Panacea; Further Actions Are Needed
Cutting models is just a temporary measure to stabilize financials. To truly improve competitiveness, automakers need to:
- Invest savings wisely: For example, in research and development of new technologies (such as batteries and advanced driver assistance systems) and in enhancing product quality (better interiors, more intelligent infotainment systems).
- Create Best-Sellers: Brands like Changan aim to develop six models each selling over 300,000 units, as this will generate significant scale benefits.
- Consider the Competitive Landscape: Leading domestic brands with self-developed supply chains (like比亚迪) or those with strong overseas markets (like Great Wall) may see profit margins return to around 4.5% by the end of 2026. Joint-venture companies, lacking core technologies and relying heavily on fuel-powered vehicles, may continue to suffer losses until at least the first quarter of 2027.
In summary, the era of producing a large number of models is over. Now, each car must prove its worth either by selling in large quantities or by generating high profits. This downsizing trend is not a whim of automakers but a necessary transition for the industry from rapid growth to sustainable, quality-oriented development.
Conclusion
This downsizing campaign is not a sudden decision but a natural outcome of the industry's evolution from reckless expansion to more refined, efficient growth. For consumers, there may be fewer models available in the future, but those that remain will be the result of careful selection by automakers. For companies, focusing resources on competitive products is essential if they want to survive in an era of thin profits.