Rising raw material costs drag down China automakers’ profits

Khodrocar - As of July 17, 2026, multiple listed Chinese automakers have issued earnings forecasts for the first half of the year, revealing a troubling trend: rising costs for raw materials and components are eroding profit margins. Among six major companies that recently released forecasts, four expect losses, while the two that remain profitable have seen their net profits decline by nearly 60% or more.

Financial performance overview

The pressure from the upstream supply chain has become a shared challenge that is difficult to digest in the short term.

The “storage chip” crisis

Beyond traditional commodities like lithium carbonate, copper, and aluminium, storage chips have emerged as a particularly difficult cost factor to manage. As AI and data centre demand surge, chip manufacturers have prioritised high-margin sectors, leading to supply shortages for automotive-grade chips.

According to TrendForce data quoted by Jiemian News, contract prices for certain mature storage chips have more than doubled in the first half of the year, with further increases of 60% to 70% expected in the second half. Unlike other materials, these chips lack financial hedging tools like futures contracts, forcing automakers to scramble for supply. In response, companies like GM, Ford, and Nio have begun signing long-term supply agreements or forming strategic partnerships with chip suppliers to secure stability.

The “double squeeze” on profitability

Automakers are currently facing a “double squeeze”:

• Rising costs: Upstream price hikes for materials and components are estimated to increase per-vehicle material costs by at least 4,000 to 7,000 yuan (600–1,000 USD), with some luxury models seeing increases of up to 10,000 yuan (1,500 USD).
• Shrinking demand & intense competition: China’s domestic retail sales of passenger vehicles fell by 20.2% in the first half of 2026. To maintain market share, companies are forced to offer heavy discounts and subsidies, while simultaneously funding a relentless pace of new product launches – averaging 3.6 new models per day in the first five months of the year.

Outlook

S&P Global Ratings suggests to Jiemian News that with domestic demand unlikely to see a sharp recovery in the near term, automakers will continue to face pressure on cash flow and margins. Profitability is expected to diverge: companies with high-end product mixes, strong economies of scale, and stable overseas operations are better positioned to absorb these costs, while smaller firms or those heavily reliant on low-margin segments face an increasingly precarious future.