[Uracarcar] '3.4% Margin Shock' Triggers Global Onslaught by Chinese Automakers... Red Flag for Korea

Double Blow: Sluggish Domestic Demand and Rising Raw Material Prices

Accelerating Overseas Expansion with Price Normalization

The Chinese automotive industry is struggling to find a breakthrough as profitability continues to decline. As fierce price competition intensifies within China, combined with rising costs of raw materials and semiconductors, operating profit margins for automobile manufacturers have dropped to the 3% range.

Major Chinese automakers, faced with a critical situation, have halted reckless price wars aimed solely at increasing market share. Instead, they are focusing on restructuring for profitability as their top priority. As these companies accelerate their expansion into overseas markets in search of survival, concerns are also rising that domestic automobile exports may stagnate.

According to the China Passenger Car Association (CPCA) on August 1, cumulative passenger car sales in China reached 7.11 million units from January through May of this year, marking a 19% decline from the previous year. As a result, the net profit of the Chinese automobile industry stood at 144 billion yuan (approximately 30.5 trillion won), down 20% compared to the same period last year.

AFP Yonhap News

During the same period, the operating margin relative to sales was 3.4%, which is only about half the average operating margin for lower segments of the manufacturing industry (6.1%). This deterioration in profitability is not a short-term phenomenon but is seen as a structural crisis. Operating margins that stood at 4.3% in 2024 and 4.1% in 2025 have fallen sharply to 3.2% in the first quarter of this year.

The average revenue per vehicle remained at 343,000 yuan (about 72 million won), but manufacturing costs surged 6.7% year-on-year to 305,000 yuan (about 64 million won). This has resulted in a distorted profit structure where profit margins shrink the more cars are sold.

The main cause of this sharp decline in profitability is the skyrocketing prices of raw materials and components within the supply chain. He Xiaopeng, Chairman of Xpeng, pointed out that "most of the cost savings achieved through technological innovation in finished vehicles are being passed on to suppliers of memory chips and lithium carbonate." In fact, the spot price of lithium carbonate, a key battery material, soared more than 160% in just half a year, jumping from 75,000 yuan per ton at the end of 2025 to 200,000 yuan by mid-May.

Imbalances in the supply of automotive semiconductors are also increasing cost burdens. While the number of semiconductors installed per vehicle has surged due to the introduction of artificial intelligence (AI) and advanced autonomous driving systems, global wafer production capacity has failed to keep pace. As a result, memory chip prices have surged up to 180% in just three months, while high-performance intelligent driving chips have increased more than 300%.

If this situation persists, Chinese automakers may have no choice but to invoke "price normalization." Zhu Jiangming, Chairman of Leapmotor, recently indicated that if the rise in raw material prices continues, price adjustments for automotive products will be inevitable. Lu Fang, Chairman of Voyah, also warned that low-priced models, for which cost increases are hardest to bear, may see production cuts or even be discontinued.

Li Shufu, Chairman of Geely Holding Group, has also declared an extensive process of "restructuring, consolidation, and transfer" of non-core subsidiaries, focusing key resources on strengthening listed entities.

Reuters Yonhap News

In particular, efforts to break through sluggish domestic consumption are expected to further accelerate expansion into overseas markets. Dongfeng Motor is currently undergoing vehicle certification for sales in Canada.

It is expected to become the third Chinese automaker to attempt entry into Canada, following BYD and Chery, as it previews two models, including "Vigo," scheduled for release next year. In addition, four Chinese automakers—BYD, Chery, Geely, and Shanghai Launch Automotive—are said to be considering local production in Canada, suggesting Chinese automotive expansion in the global market will intensify further.

Geely's premium electric vehicle brand Zeekr has signed contracts with three new dealerships in Malaysia and plans to establish 18 sales outlets there by the end of the year. Since entering Malaysia in December 2024, the company has rapidly expanded its distribution and maintenance infrastructure, recently ranking number one in Malaysia for premium electric vehicle (EV) sales.

An industry insider commented, "As Chinese automakers ramp up their overseas expansion, it is inevitable that sales competition will overheat in certain markets. Domestic automakers must respond quickly to avoid falling behind in terms of price competitiveness or product appeal."

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