The stark contrast in fortunes within the new energy vehicle sector is becoming more pronounced, with a leading battery manufacturer's earnings nearly doubling while downstream automakers face deepening losses.
Contemporary Amperex Technology Co.,Ltd. (CATL), often referred to as the "battery king," has released its preliminary financial results for the first half of 2026, forecasting a net profit attributable to shareholders of 40.5 to 42.8 billion yuan. This represents a staggering year-over-year increase of 95% to 110%, effectively doubling its profit. In an environment of intense price competition and cost pressures across the automotive industry, the dominant power battery supplier has charted its own course of robust growth, demonstrating far greater profit stability than the vehicle manufacturers it supplies.
The picture for automakers is entirely different. Among the few listed car companies that have issued preliminary earnings reports, Guangzhou Automobile Group Co., Ltd. anticipates a significantly larger year-on-year loss for the first half. Jianghuai Automobile Co., Ltd. continues to struggle with profitability. While most major automakers have yet to release their official interim reports, these early signals suggest that downstream vehicle manufacturers are likely to see profits decline or losses widen compared to the previous year.
Profit Concentration in the Upstream
Although comprehensive first-half data is still limited, first-quarter performance has already clearly outlined the industry's trajectory. An analysis of seven major profitable Chinese automakers—Chery Automobile Co., Ltd., Geely Automobile Holdings Ltd, BYD Company Limited, SAIC Motor Corporation Limited, Great Wall Motor Company Limited, Seres Group Co., Ltd., and Changan Automobile Co., Ltd.—reveals their combined first-quarter net profit was approximately 17.5 billion yuan. In stark contrast, CATL's net profit for the same period exceeded 20.7 billion yuan, surpassing the total of these seven automakers by over 3.2 billion yuan.
While the combined revenue of these seven automakers was more than four times that of CATL in the first quarter, the overall net profit margin for the vehicle manufacturing segment was a mere 3.2%. CATL, in comparison, achieved a net profit margin above 17.6%. This trend continued into the second quarter, with CATL's gross margin expected to rise further, while the vehicle industry's net margin is projected to hover between 3.3% and 3.5%. The upstream battery manufacturer's profitability is, at a minimum, five times greater than that of the downstream vehicle makers, highlighting a severe and persistent imbalance in profit distribution within the supply chain.
This structural imbalance is not new. Years ago, during the surge in lithium carbonate prices, automakers recognized the risks of supply chain dependency. This prompted a wave of self-rescue efforts, with a core strategy being the in-house development and production of batteries to reduce reliance on suppliers like CATL. However, after several years of implementation, CATL's dominant market position remains largely unshaken. Automakers' in-house battery initiatives have neither fundamentally altered the profit distribution imbalance nor challenged the pricing power held by upstream leaders.
The limited success of these efforts stems from two primary factors. First, the power battery industry is capital and scale-intensive. Achieving a lower cost for self-produced battery cells than purchasing them externally requires extremely high capacity utilization rates, which most automakers cannot sustain with their own vehicle production volumes, ultimately raising costs. Second, battery technology evolves rapidly, requiring continuous, high-level R&D investment that is difficult for automakers to maintain long-term. Consequently, most self-developed batteries are used in lower-end models, while high-end vehicles still rely on top-tier battery suppliers.
Thus, automakers' in-house battery production alone cannot resolve the core issue of profit imbalance. The gap in profitability between upstream and downstream has not narrowed but has continued to widen. The strategic focus for automakers has shifted; self-developed battery capacity is now less about replacing external suppliers and more about serving as a bargaining chip in negotiations. The industry is evolving towards a hybrid system of "in-house R&D + multiple suppliers + top battery firms as a backstop," transforming the relationship between automakers and battery makers from adversarial to one of deeper collaboration. Despite this shift, core supply orders for leading battery manufacturers have not been significantly impacted.
Persistent Structural Challenges
The current profit divergence within the new energy vehicle supply chain has reached an extreme point. This structural contradiction is driven by an unequal competitive landscape, cost structure, and pricing power. Power batteries constitute 40% to 60% of an electric vehicle's cost, making them the core cost component. Leading battery firms, with their high market share, have established a natural oligopolistic barrier and possess stronger ability to pass on raw material cost increases.
Conversely, the domestic vehicle market suffers from overcapacity and severe product homogenization. Intense competition across all segments forces automakers into price wars to capture market share, eroding their pricing power and compressing profit margins over the long term. This dynamic of a strong upstream and a weak downstream directly dictates the unbalanced profit distribution logic of the industry.
While automakers have attempted various self-rescue measures, none have fundamentally rewritten the existing supply chain structure in the short term. Whether through building in-house battery capacity or forming purchasing alliances, these actions may only temporarily lower procurement costs and cannot shake the long-term pricing system dominated by top battery makers. Some automakers have extended their reach further upstream to secure mineral resources, but this also involves high investment, long cycles, and is far less efficient than the mature supply chain systems of established mid- and upstream leaders.
This pattern of upstream players capturing excess profits while downstream players operate on thin margins or at a loss is expected to persist for the next two to three years. In the long run, a fundamental rebalancing of supply chain profits will likely depend on significant technological iteration. Breakthroughs such as solid-state batteries or new low-cost cell technologies could disrupt the current solidified competitive landscape of the power battery industry.
Furthermore, as the new energy vehicle market undergoes consolidation, with weaker players lacking core competitiveness being phased out, the intensity of price wars may subside. This could create an opportunity for the profitability of surviving automakers to recover. However, whether through technological innovation or industry shakeout, these processes require considerable time, meaning any meaningful improvement in the structural imbalance will not happen overnight.
Comments