In recent days, the sales data of the Chinese automotive industry for the first half of the year has been made public, revealing that many Chinese car manufacturers are still selling vehicles at a loss. On the other hand, joint venture luxury car brands have a huge profit margin, where the sales profit of 100 BYD cars is only equivalent to that of one Ferrari. Analysis indicates that overcapacity is the fundamental reason behind the low profitability of the industry.
Chinese major car manufacturers have successively released their financial reports for the first half of the year, unveiling the ranking of profitability per vehicle. The results show that Chinese car companies are still operating at a loss.
NIO became the “loss king” with a net loss of 10.384 billion yuan (approximately 1.46 billion US dollars) in the first half of the year, selling only 87,400 vehicles. This translates to an average loss of 118,800 yuan (around 16,000 US dollars) per vehicle sold.
XPeng Motors recorded a net loss of 2.653 billion yuan (about 370 million US dollars) in the first half of the year, with a sales volume of 52,000 vehicles, resulting in an approximate loss of 51,000 yuan (about 7,100 US dollars) per vehicle.
BEIJING HYUNDAI, represented by the brand “Ji Hu,” only won a sales volume of 28,000 vehicles in the first half of the year, with a per-vehicle loss of 91,800 yuan (about 12,000 US dollars).
Geely Auto’s Zeekr brand achieved a half-year sales volume of 87,900 vehicles but also suffered losses, with a per-vehicle profit of negative 43,600 yuan (approximately 6,100 US dollars). Additionally, Lixiang Motors sold 86,700 vehicles in the first half of the year, also resulting in a per-vehicle loss of 25,500 yuan (about 3,500 US dollars).
While some car manufacturers are still making profits, the per-vehicle profit margin remains meager.
Dongfeng Motor Group recorded a net profit of 684 million yuan (about 96 million US dollars) in the first half of the year, with a total sales volume of approximately 966,100 vehicles, resulting in an average per-vehicle profit of only 700 yuan (about 98 US dollars).
Auto groups such as Jiangling Motors, Jiangling Auto, Guangzhou Auto Group, SAIC Group, and BAIC Group recorded per-vehicle profits ranging from 1,500 to 4,200 yuan (about 210 to 590 US dollars). Changan Auto achieved a sales volume of 1.3341 million vehicles in the first half of the year, but the per-vehicle profit was only 2,100 yuan (about 295 US dollars).
SAIC Group, aided by the high-priced luxury SUV “Wen Jie M9” at 500,000 yuan, achieved a sales volume of 235,800 vehicles in the first half of the year, with a net profit of 1.625 billion yuan (about 230 million US dollars), resulting in a per-vehicle profit of only 6,900 yuan (around 970 US dollars).
BYD, the leading domestic brand in terms of sales volume, sold 1.613 million vehicles in the first half of the year, with a net profit of 13.631 billion yuan (around 1.9 billion US dollars), but the per-vehicle profit was only 8,500 yuan (about 1,200 US dollars).
However, the profits of joint venture luxury car brands have always been among the highest, with significantly higher margins despite fewer units sold compared to domestic brands. For example, selling one Ferrari equals selling 100 BYD vehicles.
In the first half of the year, the top brands in terms of per-vehicle profit were Ferrari, Lamborghini, and Porsche, with average per-vehicle profits of 851,400 yuan (about 120,000 US dollars), 640,000 yuan (approximately 89,000 US dollars), and 153,800 yuan (around 21,000 US dollars), respectively.
From the fourth to tenth place in per-vehicle profit were brands like Volvo, BMW, Tesla, Audi, General Motors, Stellantis Group, and Volkswagen Group.
It’s evident that most of the high profits are captured by foreign brands.
Currently, the loss-making vehicles sold are mainly electric vehicles. In recent years, the Chinese authorities have been hyping up the industry and expanding its scale, resulting in oversupply.
Regarding the current loss phenomenon, Professor Sun Guoxiang from the Department of International Affairs and Business at South China University in Taiwan analyzed that the overcapacity in the Chinese new energy vehicle sector is one of the important reasons causing losses.
He told Epoch Times, “Due to excess market supply, intensified competition among companies, especially in the mid-to-low-end market, car manufacturers have to lower prices to attract consumers, thus squeezing profits. In addition, in response to policy changes in mainland China and the gradual phasing-out of subsidies, many companies have increased investment, leading to increased costs. However, the market demand has not been able to quickly absorb the expanded production capacity, further exacerbating the problem of losses. Therefore, overcapacity is one of the key factors affecting the industry’s profitability.”
As early as April of this year, the National Development and Reform Commission Price Monitoring Center of the Chinese Communist Party stated that the reasons for the decline in car prices are oversupply in the market and decreasing battery costs.
The center reported that in 2023, China’s new energy vehicle production reached 9.443 million, showing a 30% annual increase. Industry data suggests that BYD, Huawei’s Wen Jie, and Li Xiang, the three companies’ planned delivery volumes, have increased by 2.3 million vehicles, exceeding the market’s predicted demand increment of 2.1 million vehicles. The market has been long under a condition of oversupply.
Sun Guoxiang also provided a detailed analysis of the reasons for the losses in car sales. He believes that firstly, the intense competition in the new energy vehicle industry requires companies to invest substantial capital in technological research and market expansion, leading to high costs. Secondly, price wars have intensified, with major brands resorting to aggressive price reduction strategies to boost sales volume, further squeezing profit margins. Additionally, weaker brand premium capability makes it difficult for them to achieve high profits through pricing like luxury brand cars.
The reason imported luxury cars can maintain high profits lies in their brand effect, relatively limited supply, and high consumer demand for luxury brands. These brands have stronger market pricing power, and their target consumer groups have lower price sensitivity, enabling them to achieve high profits per vehicle.
He also emphasized that the Chinese auto industry faces challenges of overcapacity, intense competition, and ongoing price wars, especially where domestic brands need to enhance brand premium and technological innovation further.
Although the Chinese authorities have been denying the existence of overcapacity, in April of this year, the U.S. Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz both raised concerns about China’s overcapacity issue during their visits to China. Yellen emphasized her worries about China’s long-standing macroeconomic imbalances: weak household consumption and excessive corporate investment. The massive support by the Chinese authorities to specific industry sectors has exacerbated the imbalance, posing significant risks to workers and businesses in the U.S. and other countries.
The overcapacity in electric vehicles is also impacting the healthy development of the global automotive industry. In order to dominate the global electric car market, the Chinese government has taken a series of subsidies, tax reductions, procurement contracts, and other indirect incentives at the expense of vast sums of money, ultimately creating a market of 13.1 million vehicles, accounting for 60% of the global electric vehicle inventory, forcing some global car manufacturers to restructure or close down their businesses.