Auto Industry Profits Drop 20% in H1 2026 as Rising Upstream Costs Squeeze Margins

From January to June 2026, China’s automobile industry produced 15.1 million vehicles, a 4% year-over-year decline. Of this total, new energy vehicle (NEV) output reached 7.4 million units, up 6% year-over-year, accounting for 49% of total production; conventional fuel-powered vehicle output totaled 7.7 million units, down 12% year-over-year. In June alone, NEV production hit 1.62 million units, surging 29% year-over-year and pushing the NEV penetration rate to 58%, while fuel vehicle output dropped 24% year-over-year to 1.2 million units. During the same period, the auto industry generated revenue of RMB 5,189.3 billion, up 1.8% year-over-year; costs amounted to RMB 4,610 billion, rising 2.8% year-over-year; and profits totaled RMB 195.4 billion, down 20% year-over-year. The industry’s profit margin fell to 3.8%, marking its third consecutive annual decline and significantly lagging behind the average 6.5% profit margin of downstream industrial enterprises. On a per-vehicle basis, average revenue from January to June stood at RMB 344,000, up 5% year-over-year; average cost was RMB 305,000, up 6% year-over-year; and gross profit per vehicle was only RMB 13,000, down 17.7% year-over-year. With cost growth consistently outpacing revenue growth, profit margins have been squeezed. The primary driver behind this trend is persistently high upstream raw material prices. Lithium carbonate prices have doubled, and commodity prices remain elevated, significantly boosting profits in upstream mining sectors: profits in non-ferrous metal smelting surged 40.6% year-over-year, the petroleum sector posted a profit margin of 32.4%, and the mining industry as a whole achieved a 21% profit margin. Tensions are particularly acute in the battery segment. Export prices for lithium-ion batteries have continued to fall—from RMB 142,900 per ton in 2024 to RMB 104,800 per ton in the first half of 2026—a further 12% year-over-year decline. Yet domestic battery prices remain relatively firm. Listed lithium battery companies face average payment terms of 200 days from suppliers but collect receivables from automakers in just 60 days. Analysts note that most automakers do not independently develop or manufacture their own batteries, undermining the sustainability of their profitability. Going forward, more OEMs are expected to follow international practices and accelerate vertical integration into battery production. Under the prevailing “OEM-centric” trend, the industry’s profit structure could improve. However, given the dual pressures of high upstream costs and intense price competition at the consumer end, the sector’s low profitability is unlikely to see a fundamental turnaround in the near term.