Rising Raw Material Costs Put Pressure on Chinese Automakers Profits

As of July 17, 2026, China’s major publicly traded automakers have begun releasing preliminary financial forecasts for the first half of the year, and the outlook is increasingly concerning. Rising costs for raw materials and components continue to erode profitability across the industry. Of the six companies that have disclosed earnings expectations so far, four have warned that they expect to post losses, while the remaining two anticipate profit declines of nearly 60% or more. Cost inflation has become a systemic challenge that automakers are struggling to offset.

GAC Group expects a net loss of between 4.06 billion and 4.57 billion yuan ($590–660 million). In addition to higher raw material costs, the company cited increased spending on sales operations, weaker performance from its joint ventures, and foreign exchange fluctuations.

Changan Auto forecasts a 57.7%–67.7% decline in net profit, to between 740 million and 970 million yuan ($110–140 million). The company pointed to rising material costs, exchange-rate losses, and investments in overseas expansion projects.

Seres expects to report a net loss of 1.5–1.8 billion yuan ($220–260 million), citing supply chain adjustments and higher material costs.

BAIC BluePark projects a loss of 1.77–1.97 billion yuan ($260–290 million), attributing the result to heavy research and development spending, insufficient economies of scale, and rising supplier prices.

JAC Motors expects a loss of approximately 740 million yuan ($110 million) amid declining vehicle sales, losses from joint ventures, and foreign exchange headwinds.

Great Wall Motor has also warned of lower profitability, citing delays in receiving overseas tax incentives and currency fluctuations.

Another major challenge facing the industry is a growing shortage of memory chips. Surging demand from artificial intelligence and data center operators has encouraged semiconductor manufacturers to prioritize more profitable markets, leaving automotive-grade chips in short supply.

According to data from TrendForce, cited by Chinese media outlet Jiemian News, contract prices for certain mature memory chip products more than doubled during the first half of 2026. Prices are expected to rise by an additional 60% to 70% during the second half of the year. Unlike many raw materials, memory chips cannot be effectively hedged through futures markets, forcing automakers to compete aggressively for supply.

To secure access to critical components, companies including General Motors, Ford, and Nio have already begun signing long-term agreements and forming strategic partnerships with semiconductor manufacturers.

The automotive sector is now facing pressure from two directions simultaneously. On one hand, rising material and component costs are estimated to have increased production costs by at least 4,000–7,000 yuan ($600–1,000) per vehicle, with some premium models seeing increases of up to 10,000 yuan ($1,500).

On the other hand, weakening demand and fierce competition continue to squeeze margins. Retail passenger vehicle sales in China fell 20.2% during the first half of 2026. To defend market share, automakers have been forced to offer substantial discounts and incentives while maintaining an aggressive product launch schedule. During the first five months of the year, manufacturers introduced an average of 3.6 new vehicle models every day.

Analysts at S&P Global Ratings, quoted by Jiemian News, do not expect a rapid recovery in domestic demand, suggesting that pressure on cash flow and profitability will persist. However, they believe the impact will vary significantly across the industry. Automakers with strong premium brands, large-scale operations, and diversified international businesses are likely to absorb higher costs more effectively, while smaller manufacturers and companies concentrated in low-margin market segments may face significantly greater financial strain.