Consumers should expect to pay more for new cars from China, especially as pressure on the global supply chain has caused profits to fall for automakers around the world.
As China’s auto industry reached a production milestone in 2025, overtaking Japan for the first time as the world’s largest producer of new vehicles, rapidly declining profit margins are starting to pinch.
While commodity price increases are already taking place in Australia, the US and Europe, China faces a unique situation due to the oversupply of new vehicles and underutilized car factories.
According to the China Association of Automobile Manufacturers (CAAM), China produced about 35 million new vehicles in 2025, but the annual production capacity is estimated at about 55 million.
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The excess capacity alone is enough to cover the nearly 17 million auto sales of the entire US industry last year.
A report from outlet Sohu suggests that domestic price wars between automakers in China may be ending as lower profit margins make discounting more difficult – and that could lead to prices rising for the first time.
Profit margins on new cars made in China reportedly fell to 3.2 percent in the first three months of 2026, compared to an average of 6.0 percent for all business types in the country.
The decline comes as pressure from a number of areas means car brands in China may no longer be able to cut new vehicle prices indefinitely to support sales.
Price increases across the supply chain include more expensive raw materials, including lithium carbonate for batteries – the price of which has more than doubled in the past twelve months – as well as higher prices for aluminium, steel and plastics, alongside increases in natural and synthetic rubber used to produce tyres.
The cost of digital memory storage has also risen, while US tariffs – and the volatile changes therein – have also hurt automakers.
Suppliers themselves have also been hit by higher crude oil prices, which have in turn increased shipping costs, increasing pressure on automakers.
Toyota, the world’s largest automaker, posted its third straight year of lower profits last year despite selling more vehicles by 2025.
Operating profit margin fell from 10 to 7.4 percent, while prices rose in the US and in Australia for popular models including the HiLux, RAV4 and LandCruiser 300 series.
Chinese car brands in Australia have also increased some of their prices in the past 12 months, but carmakers in China have yet to pass on much of their latest cost increases to consumers due to oversupply in the country.
“In the pattern of supply exceeding demand, a supplier increases the price to the OEM rashly once [original equipment manufacturer, or automaker]Some peers will choose not to raise the price and conquer the market, and no one will dare to take the lead in raising the price,” the Sohu report said.
Automakers are approaching potential price increases for consumers similarly, looking for internal efficiencies or cost savings, such as switching to cheaper materials where possible as a way to minimize higher showroom prices.
Yet this approach is not sustainable, as car companies now have to be more critical with discounts.
“We have made a small adjustment by offering a down payment of 1,000 yuan, which counts as 3,000 yuan toward the purchase price. Previously, it was 2,000 yuan, which amounted to 5,000 yuan,” Chinese brand Nio CEO William Li said in April.
“In reality, we wanted to reduce the size of the discount gap and make reservation incentives more conservative and restrained.”
In mid-2025, Chinese authorities moved to end the price wars, describing them as “irrational competition” that was destroying the profitability of the auto industry.
This included banning so-called “zero-kilometer cars” that were allegedly produced by Chinese automakers and registered as sold domestically to meet local production quotas before being shipped abroad and sold as used cars.
Due to the current impasse, the first automaker to blink may suffer the most. However, BYD – the largest car brand in China and the world’s largest supplier of Chinese cars by 2025 – increased the price of some of its options earlier this month.
BYD may be big enough to absorb the impact of rising costs and maintain customer appeal, but many brands in China may not have the same resilience, according to Sohu.
“There are more than a hundred brands on the same circuit, and if any of them raise prices, competitors will immediately make up for it,” the report said.
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