Chinese carmakers’ profits under pressure as chip and raw-material costs rise

After several Chinese carmakers published their first-half financial guidance, one pattern stands out: profits are being squeezed by higher raw-material and component costs, compounded by factors such as the price war, weakening demand and rising investment.

Some of the clearest examples come from GAC Group, which is forecasting a loss of between 4.06 and 4.57 billion yuan (approximately €524–590 million at the current exchange rate). Seres is also expecting to post a deficit, projecting losses of between 1.5 and 1.8 billion yuan (€193–232 million), while BAIC Bluepark and JAC Motors likewise anticipate finishing the half-year in the red.

Even manufacturers still in positive territory are not immune. Changan Automobile is projecting that profits will drop by between 57.7% and 67.7%, and Great Wall Motor is also warning of lower profits.

Chips add to the pressure on Chinese carmakers

Beyond the rising prices of raw materials such as lithium, copper and aluminium, carmakers are now facing another headwind: more expensive chips. Surging demand for semiconductors used in artificial intelligence and data centres has led many suppliers to prioritise those segments, leaving fewer components available for the automotive industry and pushing prices sharply higher.

According to TrendForce data cited by Car News China, the prices of some of the most widely used automotive chips doubled during the first half of the year and could climb by a further 60% to 70% by year-end.

Limited hedging options and longer-term supply deals

Unlike many raw materials, these components do not have financial instruments that allow manufacturers to hedge against price swings. As a result, several carmakers have been driven to negotiate long-term supply contracts simply to secure enough chips.

Modern vehicles rely on dozens - and in some cases hundreds - of semiconductors to manage functions ranging from safety and engine efficiency to infotainment systems and autonomous driving.

Industry figures indicate that higher prices for raw materials and components could add between 4,000 and 7,000 yuan (around €516–904) to production costs per vehicle, and may exceed 10,000 yuan (about €1291) on more expensive models.

Demand slows

These cost increases are arriving as China’s car market shows signs of cooling: passenger-car sales fell by 20.2% in the first half. At the same time, an especially aggressive price war is forcing many manufacturers to sell vehicles with very slim profit margins.

Price war pressures alongside rapid model launches

Adding to the strain is the pace at which new models are being introduced. Over the first six months of the year, roughly 180 new cars entered the Chinese market - effectively one launch per day - requiring manufacturers to sustain high levels of spending on research, development and marketing, even as margins continue to tighten.