Consumers should expect to pay more for new cars from China in particular as pressure on the global supply chain has seen profits fall for car manufacturers around the world.
While the Chinese auto industry reached a production milestone in 2025 – overtaking Japan as the world’s largest producer of new vehicles for the first time – rapidly falling profit margins are starting to bite.
While commodity price rises in Australia, the US and Europe are already being implemented, China faces a unique situation due to its oversupply of new vehicles and under-utilised car factories.
According to the China Association of Automobile Manufacturers (CAAM), China manufactured around 35 million new vehicles in 2025, but its annual production capacity is estimated to be around 55 million.
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Its excess capacity alone is enough to cover the entire US industry’s nearly 17 million vehicle sales last year.
A report by outlet Sohu suggests the domestic price wars between automakers in China may be ending as lower profit margins make discounting harder – and that could see prices increase for the first time.
Profit margins on new vehicles made in China reportedly fell to 3.2 per cent in the first three months of 2026, compared with an average of 6.0 per cent across all enterprise 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 endlessly slash their new-vehicle prices to prop up sales.
Price increases across the supply chain include more expensive raw materials, including lithium carbonate for batteries – which has more than doubled in price over the last 12 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 increased, while US import tariffs – and volatile changes to them – have also hurt automakers.
Suppliers themselves have also been impacted by higher crude oil prices, which have in turn increased shipping costs, compounding pressure on car manufacturers.
The world’s biggest automaker by volume last year, Toyota, posted its third consecutive year of reduced profits despite selling more vehicles in 2025.
Its operating profit margin fell from 10 to 7.4 per cent, while prices rose in the US and increased in Australia for popular models including the HiLux, RAV4 and LandCruiser 300 Series.
Chinese auto brands in Australia have also increased some of their prices over the past 12 months, but automakers in China are yet to pass on much of their latest cost increases to consumers because of the country’s oversupply situation.
“Under the pattern of supply exceeding demand, once a supplier rashly raises the price for the OEM [original equipment manufacturer, or automaker], some peers will choose not to raise the price and seize the market, and no one will dare to take the lead in raising the price,” the Sohu report said.
Automakers are approaching potential price rises for consumers in the same way, looking for internal efficiencies or cost savings such as swapping to cheaper materials where possible as a way to minimise higher showroom prices.
Yet this approach is not sustainable, with car companies now having to be more discerning with discounts.
“We made a small adjustment by offering a 1000 yuan deposit that counts as 3000 yuan towards the purchase price. Previously it was 2000 yuan counting as 5000 yuan,” said the CEO of Chinese brand Nio, William Li, in April.
“In reality, we wanted to reduce the size of the discount gap and make the reservation incentives more conservative and restrained.”
In mid-2025, Chinese authorities moved to end price wars, describing them as “irrational competition” that was destroying the auto industry’s profitability.
This included outlawing so-called ‘zero-mileage cars’ allegedly produced by Chinese automakers and recorded as sold domestically to meet local manufacturing quotas before being shipped overseas and sold as used cars.
The current stalemate may see the first automaker to blink suffer the most. However, BYD – the number one auto brand in China, and the world’s biggest supplier of Chinese vehicles globally in 2025 – increased the price of some of its options earlier this month.
BYD may be large enough to absorb the impact of its rising costs and maintain customer appeal, however, many brands in China may not have the same resilience, according to Sohu.
“More than 100 brands are crowded on the same track, and if any one of them raises prices, competitors will immediately make up for them,” said the report.
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