Auto Giants See H1 Profits Slide as Soaring Raw Material and Chip Costs Squeeze Margins

In the first half of 2026, numerous automakers released earnings forecasts, with most reporting declining profits, significant losses, or even a shift from profit to loss. Key contributing factors included foreign exchange volatility and sustained increases in upstream raw material prices. According to data from the China Association of Automobile Manufacturers (CAAM), the average profit margin for domestic vehicle manufacturing during the same period dropped to 1.5%, the lowest level in nearly a decade. Core raw materials experiencing price surges include lithium carbonate, copper, aluminum, tin, and plastic resins. Notably, battery-grade lithium carbonate prices rose from RMB 75,000 per tonne at the end of 2025 to over RMB 200,000 per tonne by mid-May 2026. Although prices retreated to RMB 150,000–158,000 per tonne by July, they remained substantially higher than the same period last year. Due to rising copper and aluminum prices, the per-vehicle production cost for a mid-sized smart EV increased by RMB 1,200 and RMB 600, respectively, in the first quarter of 2026. Prices of automotive-grade memory chips surged by 180% between March and June 2026, with some high-end models seeing price hikes exceeding 300%. The combined impact of DRAM and NAND Flash alone raised per-vehicle costs for smart-driving models by RMB 7,000–10,000—exceeding the cost impact from lithium carbonate price increases. Power semiconductor prices also climbed by 20%–50%, further inflating manufacturing expenses. Under mounting cost pressures, dozens of automakers—including BYD, Changan, NIO, Zeekr, Tesla, Xiaomi, and Harmony Intelligent Mobility Alliance—raised vehicle prices or adjusted their pricing structures in the first half of 2026. Meanwhile, some upstream suppliers saw substantial profit growth. In Q1 2026, CATL reported a 48.52% year-over-year increase in net profit, while Gotion High-Tech’s net profit (excluding non-recurring gains) surged by 179.51%. CALB and EVE Energy posted net profit growth of 62.1% and 36.32%, respectively. Leading power battery manufacturers maintained gross margins of approximately 23.8%, far exceeding the 2%–4% net margins typical among OEMs. Additionally, component suppliers such as New朋 Shares, Jifeng Group, Dongfeng Technology, and Risun Group also issued forecasts of sharply higher net profits. However, not all suppliers benefited: as of July 14, 2026, among 55 A-share auto parts companies that released interim earnings guidance, only 16 reported net profit growth, 8 turned losses into profits, and 22 remained in the red. Traditional ICE-component suppliers, facing shrinking demand, stagnant technological upgrades, annual price-down demands from OEMs, and elevated raw material costs, are under severe operational pressure. Boston Consulting Group forecasts that demand for internal combustion engine-related components will decline by 8% by 2035, while electrification- and intelligence-related components will sustain double-digit annual growth rates. Currently, industry profits are primarily flowing to battery and chip suppliers that possess core technologies and operate in high-growth segments, whereas traditional-component suppliers are struggling. Caught between soaring upstream costs and intensifying downstream market competition, OEMs face an increasingly difficult operating environment. In this saturated market, most automakers still rely on price cuts to boost sales, further squeezing their already thin profit margins.