The once-profitable automotive industry in China, which was once hailed as a profitable industry, is now seeing profits as thin as paper. Data shows that the overall profit margin of China’s automotive industry has plummeted to 1.5%. Analysts believe that despite appearing as a multi-billion-dollar industry, it has long been caught in a high-risk, low-profit dilemma, with significantly increased risks.
According to Chinese media reports on July 14th, at the High-Quality Development Summit of China’s automobile industry, Chen Shihua, Deputy Secretary-General of the China Association of Automobile Manufacturers (CAAM), stated that the automotive industry is facing operational issues, with the profitability of the automotive manufacturing industry at historically low levels.
CAAM’s data shows that from January to May this year, the automotive manufacturing industry achieved operating income of 4.2096 trillion yuan, a year-on-year increase of 1.4%; total profits reached 143.95 billion yuan, a year-on-year decrease of 19.8%; profitability of the automotive whole vehicle manufacturing sector decreased by 43%, with the profit margin of automotive whole vehicles standing at only 1.5%.
Chen Shihua pointed out that in addition to the market shrinkage, the decrease in overall vehicle profits is due to two main factors. Firstly, the increase in upstream raw material prices. Although raw material prices began rising last year, the impact did not fully trickle down until this year; secondly, there has been a shift in the downstream profit distribution structure. Compared to traditional automotive supply chains, the proportion of batteries, chips, and intelligent components in electric vehicle manufacturing costs has risen, further squeezing the profit margins of enterprises on whole vehicles.
Chen Shihua mentioned that lowering prices is not bringing significant sales volume for car manufacturers nowadays. Furthermore, the Middle East was originally a core market for sales increment in Chinese automotive exports, yet from January to May this year, Chinese exports to the Middle East dropped by 20.62%.
On July 15th, industry insiders in the automotive sector wrote on the Sohu Auto Channel, stating that what appears to be a massive industry worth billions of yuan has actually long been trapped in a harsh low-profit crisis. A 1.5% profit margin means that car manufacturers, after deducting costs for research and development, production capacity, channels, labor, and marketing, have very little net profit ranging from a few hundred to a few thousand yuan, making it almost negligible.
The article expressed that the razor-thin 1.5% profit margin implies almost zero tolerance for the entire automotive industry. Any minor increase in raw material prices, slight decrease in sales volume, or minor increase in marketing costs can immediately turn car manufacturers from profit to loss. This is also the core reason why many leading car companies like Saic Group, GAC, and JAC collectively predicted losses this year; the extremely low profit margin simply cannot withstand industry fluctuations.
Additionally, the article pointed out that at the same time, there is a severe excess in car manufacturing capacity, with enormous pressure from inventory, forcing companies to rely on price cuts to clear inventory, further squeezing the already meager profits and causing the continuous decline in the overall industry profit margin.
Recently, Chinese automakers have successively released their semi-annual financial reports. The reports indicate that in a market environment that is cooling down and with intense industry competition, the sales targets of many automakers have generally fallen short. SAIC Group, Geely, Chery, NIO, and Ideal Motors achieved sales targets at rates of 40%, 41%, 42%, 40%, and 42% respectively. Furthermore, the stagnant traditional fuel vehicle market continues to drag down some car manufacturers, such as sales decline by 11.8% for Changan Automobile.
Wang Xia, President of the Automobile Industry Branch of the China Council for the Promotion of International Trade, mentioned to Chinese media that the profit margin of the automotive industry is significantly lower than the national average of 4.9% for industrial enterprises above a certain scale. The Chinese automotive industry is facing a rare triple decrease in sales, revenue, and profits.