Market Value Evaporates 570 Billion in One Month, Is the Bitter Period for China's Auto Industry Just Beginning?

Zhiliao Auto / Feide

From mid-May to mid-June, the Hang Seng Index Auto Sector fell from 2,839.911 points to 2,504.464 points, a retracement exceeding 11.8%. Meanwhile, the total market capitalization of the Shenwan Auto Sector also evaporated 570 billion yuan within this one month.

The situation was even more brutal at the individual stock level. On June 15, SAIC Motor closed at 10.79 HKD on the HK stock market, GAC Group closed at 2.46 HKD, Chery Automobile closed at 26.68 CNY, BAIC Motors dropped to 1.05 HKD, with market value remaining around 8 billion HKD. Great Wall Motors' decline within the year has exceeded 22%. New EV makers were also not spared; Li Auto, XPeng, Nio, Leapmotor, and Xiaomi all saw share price declines exceeding 20% within the year.

To understand this round of decline, one must see the true state of the terminal market. From January to May 2026, domestic passenger car cumulative retail sales were approximately 7.1 million vehicles, a year-on-year decline of 19.5%. Retail sales in May alone were 1.51 million vehicles, a year-on-year decline of 22.1%. Entering June, the situation did not improve—the first week's retail volume was only 228,000 vehicles, with the year-on-year decline widening to 23%.

It is worth noting that 950,000 new energy vehicles were sold in May, and the penetration rate rose accordingly, approaching 63%. The most intuitive reason for such a huge contrast is that market demand was released or consumed in advance by previous price cuts and subsidies. When price cuts can no longer effectively boost sales, the marginal utility of the price war is rapidly diminishing.

The decline in sales volume is just the surface appearance; the plummeting profit margins are what the capital market fears most. In Q1 2026, the overall profit margin of the automotive industry was only 3.2%, hitting a historic low. For a car priced at over 100,000 yuan, the net profit was less than 3,000 yuan. This is considered good; the profit margins of some automotive companies are even less than 1.1%.

Facing thin profit margins, the Ministry of Industry and Information Technology and the State Administration for Market Regulation jointly interviewed some automotive companies on June 11, requesting them to curb irrational price cuts and disorderly competition. However, even after the interviews, as long as competitors are still cutting prices, no company dares to stop voluntarily, forcing everyone into a "Prisoner's Dilemma".

Compared to the decline in profit margins, the erosion of profits by oversupply is even more fatal. Currently, the overall capacity utilization rate of the automotive industry is less than 70%. In 2025, the total capacity of China's automotive industry was about 48.7 million vehicles, while actual sales were only 26.938 million vehicles. A large number of production lines are in a semi-idle state, and the thin profits painstakingly earned are still being exploited by huge depreciation costs.

To dilute fixed costs, car companies can only continue to expand production volume. The result of this vicious cycle is that dealers' inventory pressure continues to increase. In March 2026, the dealer inventory warning index reached 57.5%. By the end of May, the total inventory in the dealer channel was about 2.5 million vehicles, with a digestion cycle exceeding 60 days. Inventory backlog means a surge in capital occupation costs, further squeezing the dealers' survival space.

Then what if the market focus is shifted overseas? Indeed, over the past two years, exports have always been the most important growth engine for China's automotive industry. In May, automobile exports reached 930,000 vehicles, with year-on-year growth still as high as 68.7%.

However, the threshold for the overseas market is actually quietly becoming higher. The US imposes an additional 25% tariff on imported complete vehicles. The EU Carbon Border Adjustment Mechanism officially entered the charging stage on January 1, 2026. In Southeast Asia, 10 automotive industry associations in Thailand have jointly proposed imposing additional consumption tax on imported Chinese electric vehicles.

From the perspective of the capital market, the valuation system of the China auto sector is undergoing a switch in underlying logic — shifting from the "Growth Stock" logic that focuses on penetration rate and imagination space to the "Cyclical Stock" logic that focuses on profitability and macro trends.

So in such logic, whoever can first turn "selling more" into "earning more", and must ensure they are not worn down by competitors, is the true winner of the next cycle.

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