'3.4% Margin Shock': Chinese Automakers Launch Global Offensive... Warning Signal for Korea [EuraCarCar]

Double Blow: Sluggish Domestic Demand and Rising Raw Material Prices

Accelerating Overseas Expansion with Price Normalization

As profitability in the Chinese automobile industry deteriorates, companies are struggling to find a breakthrough. The combination of fierce price competition within China and rising prices for raw materials and semiconductors has pushed the operating margin of finished vehicle manufacturers down to the 3% range.

Faced with a critical situation, major Chinese automakers have shifted from indiscriminate losses to expand their market share and are now prioritizing profitability through aggressive structural reform. In particular, as these companies increasingly seek survival through overseas market entry, there are growing concerns that this may lead to a slump in domestic automobile exports.

According to the China Passenger Car Association (CPCA) on August 1, cumulative passenger car sales in China from January through May totaled 7.11 million units, a 19% drop year-on-year. As a result, the net profit of the Chinese automobile industry reached 144 billion yuan (approximately 3.05 trillion yen), down 20% compared to the same period last year.

AFP Yonhap News

During the same period, the operating margin as a percentage of sales was 3.4%, only about half the average for sub-sectors of the manufacturing industry (6.1%). This deterioration in profitability is analyzed not as a temporary fluctuation, but as a structural crisis. The margin, which stood at 4.3% in 2024 and 4.1% in 2025, plummeted to 3.2% in the first quarter of this year.

While the average sales per vehicle remained at 343,000 yuan (about 72 million won), the manufacturing cost surged 6.7% year-on-year to 305,000 yuan (about 64 million won), resulting in an abnormal profit structure where the more cars sold, the lower the margin becomes.

The biggest driver behind the precipitous drop in profitability is the soaring cost of raw materials and supply chain components. He Xiaopeng, Chairman of Xpeng, pointed out, "Most of the cost savings achieved by automakers through technological innovation are being passed on to partners supplying memory chips or lithium carbonate." In fact, the spot price of lithium carbonate, a key battery material, soared more than 160% in just six months, from 75,000 yuan per ton at the end of 2025 to 200,000 yuan in mid-May.

Imbalances in the supply of automotive semiconductors are also adding to cost pressures. Although the number of semiconductors installed per vehicle is skyrocketing due to the adoption of artificial intelligence (AI) and advanced autonomous driving systems, global wafer manufacturing capacity cannot keep up. As a result, prices for memory chips have surged up to 180% in just three months, while high-performance intelligent driving chips have soared more than 300%.

If this situation persists, Chinese automakers will have no choice but to turn to "price normalization" strategies. Li Qiangming, Chairman of Leapmotor, recently indicated that product price adjustments will be inevitable if raw material price increases continue. Lupeng, Chairman of Voyah Automobile, likewise warned that it may become difficult to maintain production volume for low-priced models, and that production cuts or even discontinuation could occur due to soaring costs.

Li Shufu, Chairman of Geely Holding Group, has also declared that core resources will be consolidated into its listed entities through extensive "streamlining, mergers, and transfers" of non-core subsidiaries.

Reuters Yonhap News

In particular, accelerated overseas expansion is expected as a way to overcome sluggish domestic demand. Dongfeng Motor is currently conducting vehicle certification for sales in Canada.

By previewing two models, including 'Vigo', which is expected to launch next year, in the local market, Dongfeng Motor is expected to become the third Chinese finished vehicle company to attempt entry into Canada, following BYD and Chery. In addition, BYD, Chery, Geely, and Shanghai Launch Automotive are reportedly considering local production in Canada, raising expectations that China's push into global auto markets will only intensify.

Zeekr, the premium electric vehicle brand of Geely, has signed new contracts with three Malaysian dealerships and plans to establish 18 retail outlets by the end of this year. Since entering the Malaysian market in December 2024, the company has rapidly expanded its sales and maintenance infrastructure, recently ranking first in Malaysian premium electric vehicle (EV) sales.

Industry insiders noted, "As Chinese automakers further expand overseas, sales competition in some markets will inevitably overheat," adding, "Domestic finished vehicle manufacturers must prepare timely responses to avoid losing ground in terms of price competitiveness and product appeal."

This content was produced with the assistance of AI translation services.