In the first half of 2026, China's automotive manufacturing sector delivered a mixed performance. Overall, as of late July, six complete vehicle companies—Great Wall Motor, Changan Automobile, GAC Group, Seres, BAIC BluePark, and JAC Motors—have released their semi-annual performance forecasts. Only two reported profits, both of which were halved.

Additionally, data from the National Bureau of Statistics shows that the total profit of the automotive manufacturing sector decreased by 19.5% year-on-year, with the average profit margin for complete vehicle manufacturing dropping to a ten-year low of 1.5%. Among 89 A-share listed automakers, only 30% reported positive outlooks, while 41 reported losses. On the other end of the supply chain, Contemporary Amperex Technology Co. Limited (CATL, 300750) reported a net profit of 43.284 billion yuan in the first half of the year, with battery manufacturers' profits surging against the trend—one CATL is worth three BYDs. Battery sellers are counting their money, while vehicle manufacturers are crunching numbers. The divergence in these interim reports exceeded most expectations.

In response, the market has begun to ask: Where is the automotive industry's profit shifting?

01. Where Has the Profit Gone?

Data from the National Bureau of Statistics reveals a clear path of profit transfer: In the first half of the year, operating costs in the automotive manufacturing sector increased by 2.8% year-on-year, significantly higher than the 1.8% growth in revenue. When cost growth outpaces revenue growth, profits are naturally squeezed.

The squeeze comes from three directions.

The first is raw materials. The price of lithium carbonate remains high, copper prices rose by more than 30% year-on-year in the first half, aluminum prices fluctuated at high levels, and storage chip prices increased. New energy vehicles use three to four times more copper per vehicle than fuel-powered cars, significantly raising the costs of wiring harnesses and motor controls. Seres explicitly mentioned the impact of "rising prices of major raw materials such as storage chips, industrial metals, and lithium carbonate" in its announcement; GAC and Changan also cited raw material costs in their announcements.

The second is exchange rates. In the first half of the year, the Bidirectional fluctuation (two-way fluctuation) of the RMB exchange rate intensified, particularly impacting automakers with higher proportions of overseas sales. Great Wall Motor estimated a comprehensive exchange loss of approximately 266 million yuan, with exchange gains decreasing by about 1.759 billion yuan year-on-year; Changan Automobile listed exchange losses as one of the main factors contributing to the decline in net profit; JAC Motors incurred financial expenses of about 140 million yuan due to exchange rate fluctuations, with exchange gains decreasing by about 390 million yuan year-on-year; BYD reported financial expenses of 2.1 billion yuan in the first quarter (primarily exchange losses). A rough estimate indicates that exchange-related factors alone reduced profits by over 6 billion yuan for several leading automakers in the first half of the year.

The third is competition. In the first half of 2026, domestic passenger vehicle retail sales plummeted by 20.2% year-on-year, but the pace of new vehicle launches continued to accelerate—over 500 new models were introduced in the first half alone, with more than 130 active automotive brands. A flood of new products entered the market, triggering layer upon layer of price wars, prompting automakers to continuously increase sales investments to maintain market share. Data from the China Association of Automobile Manufacturers shows that the industry's overall profit margin has nearly halved from its 2017 peak of 7.8%.

At the other end of the supply chain, battery manufacturers are faring quite differently.

CATL's net profit of 43.284 billion yuan in the first half of the year is nearly 2.5 times the combined first-quarter profits of seven leading automakers—Chery, Geely, BYD, SAIC, Great Wall, Seres, and Changan. Its market share in domestic passenger vehicle battery installations reached 46.7%, up 5.6 percentage points year-on-year, with a 75.2% share in ternary power batteries. EVE Energy (300014) forecasts a first-half net profit of 3.130 billion to 3.371 billion yuan, up 95% to 110% year-on-year, with power and energy storage battery sales growing by 83.1% year-on-year in May, even surpassing CATL and BYD. Gotion High-Tech (002074) expects a net profit of 1.2 billion to 1.55 billion yuan, up 227% to 323% year-on-year.

Cui Dongshu, Secretary-General of the Passenger Car Market Information Joint Council at the China Automobile Dealers Association, summed up the essence: Battery costs account for about 25% of a vehicle's price, and battery technology is evolving toward higher charging rates, higher specific energy, and solid-state batteries. Mastering core power battery capabilities is key for automakers to build long-term competitiveness. The sentiment that "automakers are working for leading battery manufacturers" has been circulating in the industry for some time. In the first quarter, CATL's net profit was 20.74 billion yuan, while the combined net profit of the seven automakers mentioned earlier was only 17.5 billion yuan, less than CATL's alone.

02. Components: A Tale of Two Extremes

The differentiation in the automotive components sector is even more pronounced than in complete vehicles. Among the 71 listed companies in the Shenwan Secondary Automotive Components sector that had disclosed performance forecasts as of July 22, 18 reported profit increases, 8 turned losses into profits, 14 saw declines, and 31 reported losses.

The recovery of the commercial vehicle sector is the most stable "anchor." In the first half of 2026, domestic commercial vehicle sales totaled 2.297 million units, up 8.3% year-on-year, with heavy truck sales reaching 661,000 units, up a sharp 22.6% year-on-year. FAW Jiefang (000800) forecasts a first-half net profit of 270 million to 320 million yuan, up 1,274% to 1,528% year-on-year, driven by overseas market layout (layout) and product structure optimization. Far East Sleeve (002406) expects a net profit of 95 million to 115 million yuan, up 74% to 110% year-on-year, as demand for drive shafts continues to grow.

Deep integration with the new energy supply chain is another "profit code." Jifeng Auto Parts (603997), with the continuous release of new energy passenger vehicle seat production capacity, expects a net profit of 332 million to 398 million yuan, up 116% to 159% year-on-year, with a 52% to 102% sequential increase in the second quarter. Baolong Auto (603197) forecasts a net profit of 246 million to 300 million yuan, up 83% to 123% year-on-year. Ningbo Huaxiang (002048), benefiting from both new energy component supplies and humanoid robot structural parts, expects a net profit of 610 million to 690 million yuan, successfully turning losses into profits.

Global production capacity layout (layout) has also contributed significantly. General Tire (601500) benefited from the full operation and efficiency gains of its Phase II project in Cambodia, expecting a net profit of 138 million to 178 million yuan, up 115% to 177% year-on-year. Commercial vehicle exports reached 664,000 units in the first half, up 32.5% year-on-year, directly driving a surge in overseas orders for upstream suppliers.

On the other end of the spectrum, small and medium-sized manufacturers stuck in the traditional fuel vehicle Track (track) with weak bargaining power are experiencing widespread losses. Huada Technology (603358) reported its first-ever periodic loss in the first half, with a forecasted loss of 63 million to 126 million yuan. Rising copper and aluminum prices continuously squeezed gross margins, with fuel vehicle components still accounting for more than 50% of its business. Wencan Holdings (603348) expects a loss of 180 million to 240 million yuan, driven by rising raw material costs and a decline in orders for traditional fuel vehicle models in China. Low value-added segments such as die-casting and basic stamping are being the first to be eliminated in this round of industry consolidation.

Notably, faced with the dilemma of "relying on market conditions," some component companies are leveraging their expertise in precision manufacturing and thermal management technologies to transition into emerging sectors such as robotics and data center liquid cooling. Joyson Electronics (600699) unveiled core robot components, including a dexterous hand, electronic skin, and an embodied intelligence brain, at WAIC 2026, with controller products already in mass production for leading robot companies. Ningbo Huaxiang's quadruped robots have begun mass production and delivery, with PEEK joint modules applied in mass production (mass-produced) products. Shunjing Technology (603007) is layout (positioning) itself in the data center immersion liquid cooling sector, having already established partnerships with some operators. The transition from "automotive component suppliers" to "high-end intelligent manufacturing platforms" is becoming a realistic path for industrial companies seeking a second growth curve.

03. Signs of Turnaround

Faced with the industry's ongoing profit decline, some changes are quietly unfolding.

The most visible is the policy signal to "combat excessive competition." At the national level, efforts to curb excessive competition continue, with Cui Dongshu predicting that "more automakers will aim to become global enterprises in the future, accelerating battery production and gradually improving profitability." Chang'an, Chery, and other automakers have successively (successively) stated their intention to move away from the "scale-first" approach of purely pursuing sales volume and instead pursue higher-quality growth and sustainable profitability. Great Wall Motor has consistently emphasized high-quality development, and recently, He Xiaopeng publicly stated, "We won't chase volume," refusing to blindly sacrifice brand quality for short-term gains.

Overseas expansion is seen as the most critical breakthrough. For Great Wall and Chang'an, exports now account for more than 50% of their total sales, transforming from a supplementary sales channel to a significant market share. BYD's overseas sales reached 789,400 units in the first half, with European registrations up more than 100% year-on-year. Its Hungarian factory is expected to start production this year, and its fleet of eight roll-on/roll-off vessels can transport over 1 million units annually. The significance of expanding overseas markets lies not only in opening new sales growth channels but also in accessing higher product premiums and profit margins.

Vertical integration is seen as the ultimate defense. BYD's full-chain control, from power batteries and IGBT chips to complete vehicle manufacturing, has allowed it to weather the structural impacts of raw material price hikes far better than the industry average. Its self-developed and produced power semiconductors have a self-sufficiency rate of over 90%, with prices for MCU and other general-purpose chips locked in through large-scale long-term contracts, rising far less than the industry average for spot purchases. The judgment that "automakers will inevitably accelerate battery production" reflects deeper expectations for a reallocation of supply chain influence.

In the first half of 2026, China's automotive industry underwent a rare profitability test. Among 89 A-share listed automakers, only 30% reported positive outlooks, while 41 reported losses, with the average profit margin for complete vehicle manufacturing dropping to a ten-year low of 1.5%. However, behind this grim performance, the direction of industrial restructuring is clear: Profit is shifting from complete vehicle manufacturing to power batteries and core components; competitiveness is moving from scale expansion to technological barriers and global layout (layout); growth momentum is switching from domestic price wars to overseas market expansion.

This is not the decline of an industry but a necessary path for an industry to reshape its value chain amid growing pains. The companies that can navigate this cycle will be those that master core technologies, possess global markets, and have cost-pricing power. For the majority still struggling in the price war quagmire, the window of opportunity is narrowing.

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