Metal and memory price hikes are a "double whammy"! UBS: Automakers' profits will be completely eroded.

UBS warns that a “perfect storm” regarding carmakers’ costs is taking shape.

On January 27, according to Wind Chasing Trading Desk, UBS stated in its latest research report that, with the full withdrawal of stimulus policies in early 2026 and the imposition of a 5% purchase tax, demand is already weak. On the supply side, however, there has been a sharp rebound in the prices of commodities (copper, aluminum, lithium) and key components (DRAM memory chips).

According to UBS calculations, the cost inflation for a typical mid-sized smart electric vehicle has reached as much as RMB 4,000 to 7,000. UBS noted that, in the current fiercely competitive and low-margin market environment, since it is difficult for carmakers to pass these costs on to consumers, this wave of cost increases is enough to fully erode carmakers' margins.

Metals inflation bill: Lithium, copper, aluminum all rebounding

The report says UBS built a standardized mid-sized electric vehicle cost model (assuming the total vehicle weight is 1,850 kilograms) based on its previous teardown data. In the past three months, increases in commodity prices have directly translated to BOM (bill of materials) cost increases per vehicle.

Specific calculations are as follows:

Aluminum: per vehicle usage is about 200kg. The price increase over the past three months led to per vehicle cost increase of about RMB 600.

Copper: per vehicle usage is about 80kg. The price increase led to per vehicle cost increase of about RMB 1,200.

Lithium: This is the most volatile part. Based on the assumption each 1kWh battery uses 600g of lithium carbonate, the impact varies by vehicle type:Pure electric vehicle (BEV, 80kWh battery): lithium cost increased by about RMB 3,800.Range extender (EREV, 40kWh battery): lithium cost increased by about RMB 1,900.Plug-in hybrid (PHEV, 20kWh battery): lithium cost increased by about RMB 1,000.

UBS said, according to comprehensive calculations, just for metal raw materials, the cost inflation per pure electric vehicle (BEV) is as much as RMB 5,600 (with lithium contributing the most, up to 109% price rebound).

The overlooked source of inflation: DRAM prices soaring 180%

The report also notes that aside from traditional metal materials, smart cars' "brains"—memory chips—are now becoming a new source of inflation. With the growing prevalence of advanced driver-assistance systems (ADAS) and centralized computing, demand for automotive memory is growing exponentially.

UBS learned from industry professionals that a modern vehicle with a reasonable level of intelligence usually contains about US$100 (about RMB 700) worth of DRAM. However, over the past three months, spot DRAM prices have surged 180%. This means:

Per vehicle DRAM cost has jumped from RMB 700 to RMB 2,000.

This alone brings an extra RMB 1,300 burden for each car.

UBS used a weighted model (40% entry-level 8GB memory, 20% mid-level 16GB, 20% high-end 32GB) to calculate and confirmed this RMB 1,300 mixed cost increase is broadly present.

UBS pointed out that, historically, if the whole industry faces the same raw material price increases, carmakers can usually transfer costs to consumers through price hikes. But this time is different: with purchase tax reinstated and stimulus policies withdrawn, end-user demand is fragile.

UBS believes it is still unclear how suppliers, OEMs, and consumers will share this extra RMB 4,000–7,000 cost.

The most pessimistic but realistic scenario: Given the intense market competition has already led carmakers' margins to be thin, if they have to fully bear this cost inflation, it will be enough to fully erode their margins.

~~~~~~~~~~~~~~~~~~~~~~~~

The above excellent content is from Wind Chasing Trading Desk.

For more detailed analysis, including real-time interpretation and frontline research, please join [Wind Chasing Trading Desk · Annual Membership]

Risk warning and disclaimerThe market has risks; investments need to be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular situation. Any investments made based on this article are at your own risk.