Auto Industry Profits Hit Record Low: Why NEV Companies Lose More as Sales Rise

When China’s new energy vehicle production and sales both surpassed 16 million units in 2025, setting a new global record, the industry’s average profit margin fell to a ten-year low of 4.1%. Behind this stark contrast lies the inevitable growing pains of China’s automotive industry as it transitions from “wild growth” to “high-quality development.”

1. Record Production and Sales, but Profits Hit Rock Bottom

In 2025, China’s auto production and sales reached 34.53 million and 34.40 million units, respectively, with new energy vehicle production and sales surpassing 16 million units and a market penetration rate approaching 50%. However, this scale expansion did not translate into higher profits—the automotive industry’s sales profit margin was only 4.1% in 2025, dropping further to 2.9% in January–February 2026, significantly below the 5.8% average for large-scale industrial enterprises nationwide during the same period.

Increasing revenue without profit growth has become common among automakers. In 2025, BYD’s revenue exceeded RMB 800 billion for the first time, yet its net profit attributable to shareholders fell 18.97% year-on-year. Traditional giants like Great Wall and Changan also faced the challenge of profit growth lagging behind revenue. Among new players, Leapmotor turned a profit, but NIO and Xpeng remained in a strategic loss zone throughout the year.

In sharp contrast to the profit pressures faced by automakers, core component suppliers showed strong profitability. In 2025, CATL achieved a net profit attributable to shareholders of RMB 72.201 billion, up 42.28% year-on-year. By comparison, the combined net profit of 12 major publicly listed passenger car companies was around RMB 54.6 billion—less than CATL alone.

2. Where Did the Money Go? Massive R&D and Overseas Investments

• R&D Investment: A Trillion-Yuan Bet on Intelligence. In 2025, BYD’s R&D spending exceeded RMB 63 billion, while Geely and Seres increased their R&D investment by nearly 80% year-on-year. Among new players, Li Auto, NIO, and Xpeng spent RMB 11.3 billion, 10.605 billion, and 9.49 billion, respectively, on R&D, with nearly 50% allocated to AI and intelligent driving technologies. The industry is shifting funds from marginal gains in battery capacity and range to next-generation core technologies such as edge-side large models and AI agents.

• Overseas Expansion: From Selling Cars to Building Ecosystems through Heavy Investments BYD’s overseas revenue now accounts for nearly 40% of its total, while Chery, Great Wall, and other automakers rely on international markets as a core growth engine. However, setting up overseas production facilities, meeting local regulatory certifications, and building localized service networks require massive upfront capital expenditures. This “invest first, earn later” model directly erodes current profits.

• Cost Pressures: Squeezed by Both Batteries and Chips Battery-grade lithium carbonate prices rose sharply from around RMB 75,000 per ton in July 2025 to about RMB 170,000 per ton by March 2026, an increase of nearly 130%. At the same time, the explosive growth of global AI computing centers has severely constrained the supply of automotive-grade memory chips. Over the past three months, automotive DRAM prices have risen by 180%, further driving up vehicle manufacturing costs.

3. The Way Forward: From Price Wars to Value Wars

In 2026, the key metrics determining automaker rankings are shifting from “delivery volume” to “profitability” and “R&D conversion efficiency.” Pure price competition is no longer sustainable, and companies with strong core technology barriers will hold pricing power in the next industry cycle.

The pressure of “revenue growth without profit” is spreading across the supply chain. Automakers’ relentless pursuit of cost reduction is forcing component suppliers to accelerate technological innovation. Tier-1 suppliers with strong capabilities in chips, sensors, and algorithms will form deeper “co-development and risk-sharing” partnerships with automakers.

Future competition will no longer hinge on individual products, but on the technological depth and global operational capabilities that define the “AI-powered car.” Companies that can effectively control supply chain costs, leverage technology to shape user experience, and build open, collaborative industry ecosystems will take the lead in the next industry reshuffle.