In the first half of 2026, China's automotive industry produced 15.1 million vehicles, down 4% year-on-year; generated revenue of RMB 5,189.3 billion, up 1.8% year-on-year; incurred costs of RMB 4,610 billion, up 2.8% year-on-year; and recorded total profits of RMB 195.4 billion, a 20% decline year-on-year. The industry’s sales profit margin has declined for three consecutive years—falling from 4.3% in 2024 and 4.1% in 2025 to 3.8% in the first half of 2026—significantly lower than the average profit margin of 6.5% for downstream industrial enterprises during the same period. Per-vehicle data shows that in the first half of the year, average revenue per vehicle across the supply chain was RMB 344,000, up 5% year-on-year; average cost per vehicle was RMB 305,000, up 6% year-on-year; and gross profit per vehicle stood at just RMB 13,000, down 17.7% year-on-year. Soaring upstream raw material costs are the primary driver behind compressed margins. Lithium carbonate prices have doubled, and elevated commodity prices have boosted profits in nonferrous metal smelting by 40.6% year-on-year. Profit margins in the petroleum sector reached a high of 32.4%, while the mining industry as a whole posted a profit margin of 21%. Meanwhile, although export prices for lithium batteries fell from RMB 142,900 per ton in 2024 to RMB 104,800 per ton in the first half of 2026, domestic battery prices have remained resilient. Some lithium battery manufacturers have shifted financial pressure onto automakers by extending payment terms payable to them to 200 days while shortening their own receivable collection periods to 60 days. Production of new energy vehicles (NEVs) reached 7.4 million units in the first half, up 6% year-on-year, accounting for nearly 49% of total vehicle output. In contrast, internal combustion engine (ICE) vehicle production totaled 7.7 million units, down 12% year-on-year. NEV penetration hit 58% in June alone. Despite the accelerating substitution of ICE vehicles by NEVs, NEV profitability remains insufficient to offset the profit shortfall caused by the decline in ICE vehicle sales. Analysts note that more automakers are likely to pursue in-house battery R&D and production strategies to improve their profit structures. However, under the dual pressures of high upstream costs and intense price competition at the consumer end, the industry’s overall low profitability is unlikely to see a fundamental improvement in the near term.