China's Auto Industry Profits Shift Upstream in H1 2026 as OEMs Face Widespread Losses

In the first half of 2026, China's automotive industry witnessed a significant shift in profit distribution across its supply chain. Upstream lithium mining companies saw substantial profit growth, with Tianqi Lithium forecasting a net profit increase of over 30-fold year-on-year and Ganfeng Lithium turning from losses to profitability. Meanwhile, downstream vehicle manufacturers faced widespread pressure, as four listed automakers—including JAC Motors and GAC Group—are collectively expected to report losses ranging from RMB 8.07 billion to RMB 9.08 billion. During the same period, domestic retail sales of passenger vehicles (narrow definition) declined by 20.2% year-on-year, yet the penetration rate of new energy vehicles (NEVs) exceeded 60% for three consecutive months. The industry as a whole has shifted from “expansion through volume growth” to “competition within a stagnant market.” The traditional “smiling curve” has shifted: core components such as batteries and chips now capture a larger share of profits, while the profit margin for vehicle manufacturing has dropped to just 1.5%, placing the segment in severe loss territory. This realignment in profit distribution is primarily driven by three factors. First, lithium carbonate prices have rebounded cyclically due to mismatches between capacity expansion timelines and supply-demand dynamics, giving upstream players pricing dominance. Second, rising raw material costs have proven difficult to pass on to end consumers, forcing automakers to absorb cost pressures to maintain market share. Third, the industry’s profit allocation structure is undergoing fundamental restructuring—traditional component suppliers and 4S dealerships are seeing their margins squeezed, leaving OEMs caught in the middle as a “squeezed layer” between upstream and downstream pressures. In the near term, this profit reallocation across the supply chain remains incomplete. As new overseas lithium mining capacity gradually comes online, upstream profits may retreat, potentially offering marginal improvement in automakers’ profitability. However, divergence will intensify: companies with technological, cost, or market advantages will recover earnings first, while slower-to-transform traditional joint ventures will continue facing significant headwinds. Downstream dealers are accelerating consolidation, with those pivoting toward NEV-related businesses better positioned to navigate the cycle. From a macro perspective, the current phase is viewed as an inevitable stage in the maturation of China’s automotive industry. Overall sector profitability sits at historic lows, and future profit distribution will increasingly favor companies capable of commanding technology-driven premiums and executing global strategies, ultimately leading to a more balanced and resilient profit structure across the automotive value chain.