In the first quarter, did the automotive industry lag behind?

Accompanied by the release of first-quarter sales and financial reports, companies such as BYD and some new car manufacturers have showcased impressive performance: sales of new energy vehicles have doubled year-on-year, and some companies have achieved triple-digit growth in net profit.

While the market cheers for the "golden age of the automotive industry," another set of data is equally worth noting—data from the National Bureau of Statistics shows that in the first quarter of 2025, the profit margin of the automotive industry was only 3.9%, lower than the average level of downstream industrial enterprises. Cui Dongshu, Secretary-General of the Passenger Car Association, stated: "In the first quarter, industrial enterprise profits turned from decline to growth, but the automotive industry lagged behind."

A profit margin of 3.9% means that compared to the previous year, the profits of the automotive industry have declined again. Moreover, compared to ten years ago, the profits of the automotive industry have already been halved.

Not only has the overall profit performance of China's automotive industry declined, but multinational car companies that once held an absolute dominant position have also seen profits plummet. Companies such as Volkswagen, General Motors, Ford, Mercedes-Benz, and BMW have all reported declining profits. In the context of continuously hitting new highs in automotive production and sales, where has the money gone?

Rising Sales, Falling Profits

Despite the continuous rise in automotive sales, the profit margin of the automotive industry has been declining year by year.

Looking back to 2014, China's automotive production and sales were 23.72 million and 23.49 million vehicles, respectively. That year, the revenue of the national automotive manufacturing industry was less than 700 billion, but the profit margin was about 8.99%.

In 2017, China's automotive production and sales soared to 29.02 million and 28.88 million vehicles, with the profit margin dropping to 7.8%.

By 2023, China's automotive production and sales further climbed to 30.16 million and 30.09 million vehicles, with the profit margin further dipping to 5.0%.

In 2024, China's automotive production and sales both exceeded 31 million vehicles, setting a historical high, at which point the profit margin of the automotive industry had fallen to 4.3%.

In 2025, this strange phenomenon of "increased production without increased revenue" continues.

Data from the National Bureau of Statistics shows that in the first quarter of 2025, profits of industrial enterprises above designated size reversed from a decline of 3.3% in the previous year to a growth of 0.8%. In March, the monthly profit also turned from a cumulative decline of 0.3% from January to March to a growth of 2.6%.

However, the automotive industry is deeply trapped in the dilemma of diverging production and profits. From January to March 2025, automotive production reached 7.51 million units, a year-on-year increase of 12%, with industry revenue at 240.22 billion yuan, a year-on-year increase of 8%. However, the cost growth was even faster, reaching 211.19 billion yuan, an increase of 9%, directly leading to a year-on-year profit decline of 6% to 94.7 billion yuan, with a profit margin of only 3.9%, far below the average level of 5.6% for downstream industrial enterprises. Among them, the data for March was even more severe, with revenue increasing by 7%, costs increasing by 9%, and profits plummeting by 28%, with the profit margin dropping to 3.5%.

Domestic Automakers: A Tale of Two Cities

Among the 25 listed automotive companies in A-shares, the profit differentiation is becoming increasingly pronounced. In the first quarter of this year, BYD, SAIC, Great Wall, and Changan contributed 76.2% of the industry's revenue and 94.77% of the net profit However, what is more concerning is that former giants of the domestic automotive industry, including GAC Group and SAIC Group, are generally facing difficulties such as the decline of their joint venture brands, pressure on the transformation of their own brands, and a slowdown in the new energy sector.

In 2024, GAC Group's sales were 2.0031 million vehicles, a year-on-year decrease of 20.04%. Total operating revenue was 107.784 billion yuan, a year-on-year decrease of 16.9%; net profit attributable to the parent company was 824 million yuan, a year-on-year decrease of 81.4%; and net profit excluding non-recurring items was -4.351 billion yuan, a year-on-year decrease of 221.8%.

Joint venture brands were once the profit cows of automotive groups, but their competitiveness has generally declined in recent years. For instance, GAC Group's joint venture brands such as GAC Acura, GAC Fiat Chrysler, and GAC Mitsubishi have successively "failed," and the two major joint venture brands, GAC Honda and GAC Toyota, have also seen a decline in sales since 2023. Now, joint venture brands can no longer provide substantial profits. In the first quarter of 2025, GAC Group did not change its loss situation, with revenue of 19.65 billion yuan, a year-on-year decrease of 7.95%; net profit was -732 million yuan, a year-on-year decrease of 159.95%.

The once industry leader, SAIC Group, has also not been spared. In 2024, SAIC Group's revenue was 627.59 billion yuan, a year-on-year decrease of 15.73%; net profit attributable to the parent company was 1.666 billion yuan, a year-on-year decrease of 88%; and after deducting non-recurring gains and losses, the annual net loss was 5.409 billion yuan, compared to a net profit of 10.045 billion yuan in the same period last year. In 2024, SAIC Group's wholesale sales of complete vehicles were 4.013 million units, a year-on-year decrease of 20.07%. SAIC Group stated that due to the decline in the fuel vehicle market and the continuous escalation of price wars, the company's sales revenue decreased and gross profit declined. Over the past year, SAIC Group's "old three-carriage" — SAIC Volkswagen, SAIC General Motors, and SAIC-GM-Wuling — has seen continuous declines in sales; meanwhile, the growth of the "new three-carriage" — new energy, overseas expansion, and self-owned brands — has not met expectations.

However, after adjustments, SAIC Group restored its growth momentum in the first quarter, selling 945,000 complete vehicles, a year-on-year increase of 13.3%; net profit was 3.02 billion yuan, achieving a year-on-year growth of 11.4%; and net profit excluding non-recurring items was 2.85 billion yuan, a year-on-year increase of 34.4%; demonstrating the resilience of established automakers.

It is worth noting that the profit performance of battery companies far exceeds that of complete vehicle companies. In 2024, the total profit of ten profitable car companies was about 95.7 billion yuan, while the net profit of CATL alone reached 50.745 billion yuan, averaging over 100 million yuan in net profit per day.

Global Giants Under Pressure

In fact, the global automotive industry is undergoing a deep transformation from fuel vehicles to electric vehicles, and established giants are also finding it difficult to remain unaffected.

For example, General Motors' revenue in the first quarter reached $44 billion, a year-on-year increase of 2.3%, exceeding market expectations of $43 billion, but net profit still declined by 6.6%, falling to $2.8 billion.

Volkswagen's operating revenue in the first quarter of 2025 was 77.6 billion euros, a year-on-year increase of 2.8%; however, operating profit fell by 37% year-on-year to 2.9 billion euros From the sales perspective, Volkswagen's global sales in the first quarter reached 2.1336 million vehicles, a year-on-year increase of 1.4%, achieving growth in most markets, but experiencing a decline in the Chinese market.

"Currently, the market is advancing with both fuel and new energy vehicles, but objectively speaking, the overall market decline for fuel vehicles is an irreversible trend," said Wu Yingkai, Deputy General Manager of FAW-Volkswagen (Business), Secretary of the Party Committee and General Manager of FAW-Volkswagen Sales Co., Ltd., in an interview with China News Weekly.

"Fuel vehicles will still exist in the Chinese automotive market for a long time, with a scale of over ten million. In the field of fuel vehicles, FAW-Volkswagen's Volkswagen brand is undoubtedly the leading player," Wu Yingkai also stated. "For electric vehicles, we will continue to provide users with more services through the ID. models this year. Starting from 2026, as nine new energy products are successively launched, we will bring users a brand new product experience and provide consumers with more products on the path of integrating fuel and electric vehicles."

Luxury brands such as Mercedes-Benz and BMW are also facing challenges. In the first quarter, Mercedes-Benz achieved revenue of €33.224 billion, down from €35.873 billion in the same period last year, a year-on-year decline of 7%; earnings before interest and taxes (EBIT) were €2.289 billion, down from €3.863 billion in the same period last year, a year-on-year decline of 41%; net profit was €1.731 billion, down from €3.025 billion in the same period last year, a year-on-year decline of 43%; however, Mercedes-Benz's profit margin still reached 7.3%, although lower than last year's 9%, it is still much higher than domestic car companies.

BMW's profit data in the first quarter plummeted by 23%, mainly due to the increasingly fierce competition faced by BMW in the Chinese market, which has pushed its overall sales in this largest single market to the lowest point in five years.

Ultra-luxury brands, including Bentley, have also not been spared. "We are experiencing a transformation period, from the very positive abnormal performance of the market in 2021 and 2022 to the current adjustment," said Dr. Frank-Steffen Walliser, Chairman and CEO of Bentley Motors, to China News Weekly. "We all know that the cyclical economy will definitely recover, and we look forward to the economy of major global markets returning to an upward cycle, but there are still many uncertainties at present."

Where Did the Profits Go?

The decline in profits in the automotive industry is related to multiple pressures from both the consumer side and the production side, as well as industry competition.

From the consumer side, the explosive growth of new energy vehicles has intensified market competition, making it increasingly cheaper to buy cars. Since 2023, Tesla has repeatedly lowered prices, with the starting price of the Model 3 dropping from 350,000 yuan to 230,000 yuan, triggering a price war across the entire industry. The price war has spread from new energy vehicle companies to traditional automotive companies, sweeping the entire industry. Some companies are even selling below cost, attempting to dilute costs through economies of scale, which has severely compressed profit margins across the industry.

At the same time, consumer demand is becoming increasingly diverse and personalized. Car companies are continuously investing more resources to meet these demands, which has increased costs to some extent, but product prices have been difficult to raise in tandem, further compressing profit margins From the production side, power batteries, as the core components of new energy vehicles, account for nearly 40% of the total vehicle cost. In recent years, although the technology of power batteries has continuously improved, the prices of key raw materials such as lithium and cobalt have fluctuated dramatically. For example, in 2022, the price of lithium carbonate once soared to around 600,000 yuan/ton. Although it has since retreated, it remains at a high level, directly driving up the production costs of new energy vehicles.

In addition, the development of automotive intelligence and connectivity requires automakers to continuously invest large amounts of capital in areas such as chips, sensors, and software development. The research and development of autonomous driving technology, from algorithm optimization to road testing verification, requires substantial financial support at every stage, and these investments are difficult to quickly convert into profits in the short term.

At the industry level, the global automotive supply chain is undergoing transformation. The traditional fuel vehicle market is shrinking, and the new energy supply chain is not yet mature. Companies must maintain the normal operation of their fuel vehicle business while investing heavily in building new energy production lines and laying out charging networks. At the same time, the rise of trade protectionism, tariff barriers, and chip shortages further increase operational costs for companies.

In response to the issue of cutthroat competition, policy measures have already begun to take action. The 2024 Central Economic Work Conference mentioned the need to rectify the issue of cutthroat competition in the industry to avoid resource waste, inefficiency, and chaotic market order caused by excessive competition. At the China Electric Vehicle 100 Forum (2025) in March this year, a relevant official from the National Development and Reform Commission stated that the problem of disorderly competition in China's automotive industry is quite prominent, with some companies sacrificing profits to seize market share, and phenomena such as false advertising and malicious defamation occurring from time to time. In the future, efforts will focus on rectifying market chaos, standardizing competition order, and maintaining a fair competitive environment.

In the deep waters of industry transformation, how to balance technological innovation and profitability remains a survival question that all automakers must face. When the tide recedes, who can survive in this battle for profit protection may be hidden in the pains and breakthroughs of transformation.

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