Strife in Strait of Hormuz Drives Up Auto Supply Chain Costs, Squeezing Profits and Accelerating Industry Divergence

Starting in March 2026, escalating U.S.-Iran tensions repeatedly disrupted shipping through the Strait of Hormuz. By early April, crude oil, liquefied natural gas (LNG), and refined product loadings through this critical chokepoint plummeted to approximately 3.8 million barrels per day (bpd), down sharply from over 20 million bpd in February, resulting in Gulf oil export losses exceeding 13 million bpd. International oil prices consequently surged from around $60 per barrel to approximately $100. This disruption has subjected the automotive supply chain to dual cost pressures from raw materials and logistics. Butadiene, a key feedstock for synthetic rubber, saw its price more than double in Q1, driving related finished product prices up by over 50%. Carbon black prices have risen more than 10% month-over-month since March. Over 50 tire manufacturers have issued price increase notices, triggering the second wave of price hikes this year. Prices of petrochemical products essential for passenger vehicles—including plastics, resins, coatings, and rubber—as well as metals such as copper, aluminum, and tin, have all risen in tandem. A rebound in lithium carbonate prices has pushed up battery costs, while memory chip prices remain elevated. According to UBS estimates, rising raw material and component costs have increased the per-vehicle cost of a mid-sized smart EV by approximately RMB 4,000 to 7,000. On the logistics front, container freight rates on Middle East routes have climbed from around $1,500 to over $3,000. Transit hubs like Dubai are experiencing backlogs of both auto parts and finished vehicles. Domestically, repeated increases in refined fuel prices have driven up road freight and warehousing costs. Despite these significant cost increases, automakers face limited ability to pass costs onto consumers due to weak domestic vehicle demand and intense price competition. The industry’s average profit margin had already fallen to 4.1% in 2025 and further declined to 2.9% in the first two months of 2026—a year-over-year drop of over 30%. Automakers are now forced to choose between protecting market share and preserving profitability, while consumers are split between accelerating purchases or adopting a wait-and-see stance, disrupting normal sales rhythms. Industry divergence is intensifying. Leading companies with scale, supply chain efficiency, financial strength, and resilience are better positioned to withstand risks. Meanwhile, automakers are accelerating adjustments to their overseas strategies, reducing reliance on direct整车 shipments and shifting toward knock-down (KD) kit exports and localized assembly. BYD is speeding up production ramp-up at its Turkey plant, FAW is building an EV production line in Egypt, and Geely is deepening its partnership with Saudi Arabia’s Aljomaih Group. Construction timelines for KD plants in multiple regions have been compressed from the original 3–5 years to just 12–18 months. Although this crisis has not undermined the fundamental strength of China’s automotive industry, it is accelerating sector consolidation through cost pressures and reshaping the competitive landscape.