Despite China's record high output and sales of vehicles last year, automakers' profits were squeezed as the average profit margin dropped to the lowest level in nine years due to a shift to electric vehicles and deepening price cuts.
Car sales jumped by 12 percent to CNY1 billion (USD141 million) last year from the year before, according to the latest data released by the China Passenger Car Association. Manufacturers earned CNY508.6 billion (USD70.8 billion) in profit, up 6 percent.
However, automakers' profit margin fell to 5 percent, lower than the average of 5.8 percent of all domestic industries. The measure of pricing power has been declining in the past nine years as in 2015, automotive companies still logged an average profit margin of 8.7 percent.
Profitability was shrinking last year due to slowing sales of gas cars and rising sales of new energy vehicles but often at a loss. Moreover, fierce competition between car sellers led to multiple rounds of price wars, industry insiders said.
From January to September last year, seven out of 20 mainland-listed car companies recorded declining net profits, according to financial data platform Tonghuashun iFind. Those included big names. Dongfeng Motor logged a 62 percent slump, whereas Guangzhou Automobile Group suffered a 44 percent drop, Great Wall Motor logged a 39 percent decline, and SAIC Group saw a 10 percent decrease. However, even NEV makers were losing money and some of them at an accelerating pace.
The profitability of most enterprises fell sharply last year, and pressures of survival became severe for some, per Cui Dongshu, secretary general of the CPCA. The market of fuel cars is still profitable, but its scale is rapidly shrinking, whereas the market of NEVs is growing quickly, but the related losses are also high, Cui added.
"Combined with previous years' downward profit margins, the recent decline in profits in the automotive industry is still relatively large, and car companies' profit pressures are getting heavier," Cui said.
The reshuffle of the automotive industry will accelerate this year, according to Zhang Yongwei, secretary general of the China Electric Vehicle 100 Association. The competition will intensify for two or three years but after that, China may see world-class automobile companies, Zhang predicted.
