China auto margins collapse as subsidy rollback and raw material costs squeeze producers

Net earnings on a 100,000 yuan vehicle have plummeted to just 1,500 yuan, signaling a structural profitability crisis for Chinese automakers beyond the ongoing price war.

By Handelsavisen Newsroom · Automated 2026-07-26 08:02 UTC · 1 min read

Profitability in China’s automotive sector has deteriorated to critical levels, with net earnings from the sale of a 100,000 yuan car falling to just 1,500 yuan.

The China Association of Automobile Manufacturers (CAAM) highlighted the severe compression, noting that the margin squeeze is driven by a combination of rising raw material costs and shrinking market demand.

The industry faces a dual headwind as the government rolls back purchase subsidies and tax incentives that previously supported sales volumes.

This policy shift has exacerbated the downturn, leaving manufacturers with fewer tools to stimulate demand while simultaneously facing higher input costs.

The result is a market environment where price wars, once a strategy to gain share, are now threatening the solvency of many producers.

This development underscores the broader challenges facing the global auto industry, particularly for international brands with significant exposure to the Chinese market.