Automotive iteration is accelerating, and it is becoming increasingly difficult for car manufacturers to recoup their investments.

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The automotive industry has entered a stage where technological investment cannot keep up with the recovery of costs.

On July 12, Seres forecast a parent net loss of 1.5 to 1.8 billion yuan for the first half of the year, and mentioned that some legacy technology assets impacted by technological iteration and model updates need their book value adjusted. The specific amount and final accounting category remain to be confirmed in the semi-annual report, but it brings a broader industry issue into focus: the speed of return on past investments is outpaced by product updates.

Looking over a longer period, similar patterns have already appeared. GAC Group’s impairment of intangible assets related to models rose from 856 million yuan in 2023 to about 1.21 billion yuan in 2025; SAIC Group’s fixed asset impairment in 2025 mainly came from equipment and tooling associated with models whose sales didn't meet expectations. Although the accounting categories differ, the operational change they point to is similar: the investments initially intended to be slowly digested over years of sales of a vehicle didn't fulfill their planned cycle.

This is not just another manifestation of the price war. Price wars reduce the profit left per car, while technological and model iteration shortens the time companies have to recoup early-stage investment. When a new round of R&D has begun but the previous round of investment still sits in the books, automakers not only have to answer whether the new car can sell — but also whether old accounts can be recovered before the next model update.

Amortization Schedules Fail

Depreciation and amortization on automakers’ balance sheets are essentially forecasts for the future: money spent today can be recovered over a certain number of years or car units sold. As long as the model’s lifecycle and sales roughly match initial estimates, these costs are distributed relatively evenly across annual profit statements.

Past accounting arrangements were designed on such long cycles. GAC Group’s technical assets related to models are generally amortized over 5 to 10 years. Volkswagen’s 2025 annual report released March 10 shows the development costs of mass-produced models, powertrains, and software are amortized over 3 to 9 years; machinery is typically used for 6 to 12 years. As long as models sell long enough, development costs, molds, and production equipment can gradually diminish across years of sales.

Impairments rewrite these forecasts. It isn't an unexpected current-period expense, but an admission by the company that past investments can no longer be recovered as originally planned in terms of time and sales. Models failing to meet expectations or tech routes being replaced early can invalidate the original amortization schedule.

This is why Seres’s adjustment of technology assets and SAIC’s impairment of part of their equipment and tooling can both be observed under the same operational issue. The former shows some technologies no longer adapt to new models; the latter shows some specialized equipment can't await the expected sales. Both prematurely settle the commercial cycle of a car that didn’t finish its intended run.

Cost Is Hard To Amortize

The payback of a car originally depended on two conditions: enough profit per car sold, and enough units sold before replacement. Price wars drive the first number down; faster iteration shortens how much time the second number has to accumulate. When both happen together, companies may not complete their projected investment recovery even while still selling cars.

The change in timing is clear. A senior executive at a new-energy automaker told Wallstreetcn that a new Chinese EV takes about 24 months from concept to launch; traditional automakers typically need 40-50 months. Faster new car development puts competitors in the market sooner — as well as exposing previous-generation models to price cuts, redesigns, or discontinuation earlier.

But investment cycles haven't shortened accordingly. GF Securities’s industry report on May 5 showed capital expenditures in the passenger car segment reached 263.99 billion yuan in 2025, up 32% year-on-year; the ratio of depreciation/amortization to revenue rose to 5.9%.

New-generation models require increasing smart and electric investments, with these technologies and equipment still needing to be recouped over many years. Product cycles get shorter, but asset recovery cycles remain long — this is the mismatch behind impairment losses in financial reports.

Seres’s quarterly report shows this squeeze. Revenue grew 34.46% year-on-year for the first quarter, but non-GAAP net profit dropped 73.87%. R&D expenses rose by 743 million yuan to 1.794 billion yuan year-on-year. Revenue growth no longer alone explains payback progress: companies are expanding R&D for the next round of products while still bearing amortization of old investments, with the mid-year report again forecasting a revaluation of technical assets.

This mismatch comes as industry profits are thin. On June 27, the National Bureau of Statistics announced auto manufacturing profits fell 19.8% year-on-year over the first five months; the China Passenger Car Association calculated that the auto manufacturing profit margin was only 3.4% over the same period as of June 29. This includes vehicles and parts; pressure is even greater for carmakers.

On July 13, Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers, said at the China Auto Industry High Quality Development Summit that the profit margin of domestic vehicle manufacturing is about 1.5%. Materials shown by CAAM at the meeting also indicated first-quarter 2026 vehicle manufacturing profits were down 43% year-on-year. The 3.4% and 1.5% figures use different statistical metrics, but taken together show how limited the profit retained at the automaker level now is. The less profit per car, the more automakers need the model to last long enough in the market. Now, what carmakers lack is exactly this time.

The thinner the profit, the harder it is for carmakers to continue to invest in projects with worsening recovery prospects. Toyota suspended the LF-ZC project in May, the next-generation pure electric Lexus sedan's development. It was intended to introduce high-performance batteries and integrated casting, with lots of tech staff and suppliers involved for years.

When the project stopped, losses weren’t just internal to Toyota. Suppliers had invested in dedicated equipment, production lines, and even factory renovations; main parts companies are expected to record losses in the billions of yen, with one possibly as high as 10 billion yen. Toyota may need to compensate parts firms hundreds of billions of yen.

Toyota did invest, but chose to stop when further investment risked raising the break-even point. In early May, President Koji Sato said at the earnings conference that lowering break-even sales would include adjusting models produced and cuts. With profit margins this thin, cars need to sell more to break even, but management is more likely to review projects sooner as to whether they are worth continuing. This reduces future sunk costs, but exposes previously committed costs sooner.

This is the unique aspect of payback in the auto industry. Automakers break up a model project among hundreds of suppliers; suppliers advance funds for tooling, molds, and lines, then recover via future production orders. The development cycle may be compressed, but the economic life of specialized equipment and the payment cycle for suppliers cannot be shortened together. If a project is canceled, the whole supply chain must redistribute the incurred losses.

Domestic suppliers face similar problems. An automaker supply chain manager told Wallstreetcn on July 14 that previously nomination fees for customers were amortized over three years after mass production; if a model enters EOP (end of production) early, the unamortized portion must be written off at once, and related inventory requires provision for impairment.

For automakers, it’s a model update; for suppliers, it can mean cash flow for a project is cut short.

Investments Must Outlive A Single Model

The Toyota project offers another answer. Toyota’s Vice President and Chief Technology Officer Hiroki Nakajima said the technologies cultivated in the LF-ZC project would be carried into future models, and technology development would not stop. Models can be canceled, but if the technology can transfer, previous investments needn’t all become sunk costs.

This distinguishes two kinds of assets: molds, tooling, and lines tied to a single model are bound to its fate, but batteries, software, platforms, and manufacturing processes that can be applied to future models have longer lifespans. The faster the iteration, the more companies need to shift investment from a single model to a series of models.

The supply chain is already changing. A supplier said their mold depreciation and amortization period is three years; if molds are fully amortized when the model is discontinued, or if molds can be used for aftermarket parts or modified for other models, impairment isn't required. The same supplier added that platform parts are making the relationship between components and models go from one-to-one to one-to-many. This not only reduces R&D costs but also lessens asset losses when any single model’s sales fall short.

Export should also be considered in this payback process. If a domestic model’s price cuts and update pace are too rapid, overseas markets can extend sales and usage time for the same platform and production line. Yutong Bus’s 2025 annual report disclosed on March 31 that overseas revenue grew 38.87% year-on-year, overseas gross margin was 29.62%, higher than the domestic 19.09%. Overseas business is a profit buffer not just because more vehicles are sold, but also because the same investment can continue to be recouped in a larger market.

But exports don't automatically cross this threshold. GAC’s July 11 disclosure showed self-owned brand exports hit 121,500 units in the first half, up 132% year-on-year, yet the company still expects a loss greater than 4 billion yuan for the half-year. Overseas sales must offset channel, tariff, exchange rate, and localization production costs. Only when the incremental sales become gross margin and cash flow can exports truly extend an investment’s life.

So, impairment and losses in interim reports are just outcomes. When models are constantly updated, what really determines profit is how quickly new models ramp up, whether technology and tooling can keep serving the next model, and whether companies can spread costs over a larger market. In the past, automakers could rely on time to recoup investments; now, they must ensure investments outlast any single model to reconcile the accounts.

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