Chinese Automakers' Profit Margins Drop to 3.8% as Battery Supply Chain Pricing Power Tilts
Alina Collins
Chinese automakers' overall margin fell to 3.8% in H1 2026 — barely half the industrial average; CATL alone out-earned seven major carmakers combined, exposing a structural pricing-power imbalance in the battery supply chain.
How bad is the margin squeeze?
H1 industry revenue rose just 1.8% year-on-year, but costs climbed 2.8%, pushing profits down roughly 20%.
Per-vehicle revenue gained 5%, yet per-vehicle cost rose 6% — the extra income fell short of the extra spending, shrinking per-unit gross profit by about 17.7%.
This means → "growing revenue but not profit" is no longer a single-company story — it is an industry-wide structural problem.
What is happening on the demand side?
Retail passenger-vehicle sales dropped roughly 20% year-on-year in H1, directly squeezing automakers' pricing room.
New-energy vehicles already account for nearly 60% of new-car sales, yet OEMs have not captured the expected profits from them.
In plain terms = selling more EVs does not mean earning more — volume went up, but margins got thinner.
Why can battery makers hold automakers hostage?
The battery pack accounts for 30%–40% of a pure-EV's total cost — the single largest cost component.
CATL and BYD's subsidiary FinDreams Battery together control over 70% of the market, leaving OEMs heavily dependent on top-tier suppliers.
Payment terms are also asymmetric: battery makers stretch payables to their own upstream suppliers to 200 days, while demanding payment from automakers within 60 days. This means → battery makers fund their upstream leverage with the automakers' cash, keeping their own balance sheets comfortable.
How much does CATL earn on its own?
In Q1 2026, CATL posted net profit of RMB 20.7 billion — more than the combined net profit of BYD, Geely, Chery, SAIC, Great Wall, Changan, and Seres (roughly RMB 17.5 billion).
This reflects a severe tilt in how profits are distributed along the value chain — the battery maker earns more than the carmakers.
The gap also lifted CATL from fifth to third among global Tier-1 suppliers.
Can nurturing second-tier battery makers fix the problem?
OEMs are backing CALB (roughly 7% market share), EVE Energy (roughly 5%), and Gotion High-Tech (roughly 4%) to break the top-tier duopoly.
Quality, however, remains unproven at scale: CALB batteries supplied to GAC Aion were previously reported to have abnormal swelling issues.
In plain terms = second-tier suppliers offer attractive capacity and pricing, but "cheap and reliable" has not yet been fully validated by the market.
Upstream players are flush — why hasn't the battery price drop reached automakers?
Upstream non-ferrous-metal smelting margins top 40%, oil sits at roughly 32%, and mining holds at about 21% — all far above the 3.8% of vehicle manufacturing.
The average export price of lithium batteries has fallen from RMB 143,000 per tonne in 2024 to roughly RMB 104,800 in H1 2026 — a steep decline.
Yet battery makers have not passed that drop through to domestic automakers. This means → the pricing benefit stays with the battery makers, not the OEMs.
With cutthroat price competition still unresolved and demand softening, whether automakers can build an independent battery supply chain is the key test for any margin recovery.
Content is for reference only, not financial advice.