Soaring Raw Material and Chip Prices Drive Up Vehicle Costs by ¥7,000, Making Automakers' Price Wars Unsustainable

In early 2026, China's auto market continues to grapple with weak demand, leaving automakers trapped in a "price-for-volume" dilemma, while the supply chain faces a cost storm. Soaring prices of key commodities—including copper, aluminum, lithium carbonate—and memory chips have driven up manufacturing costs for a mid-sized smart electric vehicle by RMB 4,000 to 7,000. Memory chip prices, fueled by surging demand from AI and data centers, have doubled or even tripled compared to last year, adding approximately RMB 1,300 in extra costs per vehicle. Meanwhile, aluminum prices have hit a 20-year high, and copper has breached RMB 100,000 per ton. Given their heavy reliance on lightweight materials and electrification components, new energy vehicles (NEVs) face particularly acute cost pressures. However, with the phase-out of government subsidies, reinstatement of purchase taxes, and intense market competition, automakers find it nearly impossible to pass these rising costs onto consumers through price hikes. Instead, they must absorb the costs themselves or squeeze their upstream suppliers. According to UBS estimates, if vehicle prices remain unchanged, profit margins on certain models could be entirely wiped out. The industry is now entering an accelerated consolidation phase, where scale, cash flow strength, and cost-control capabilities will determine survival.