The auto market in the interim report shows two contrasting situations: passenger cars are experiencing a boom and bust, while commercial vehicles are thriving.

While both are car manufacturers, passenger car companies are sacrificing profits to bridge the gap between old and new products, while commercial vehicle companies are reaping the benefits of new orders. The contrast in their half-year reports is more complex than a price war.

According to data from the China Association of Automobile Manufacturers (CAAM), in the first half of 2026, passenger vehicle sales reached 12.72 million units, a year-on-year decrease of 6%; while commercial vehicle sales reached 2.297 million units, a year-on-year increase of 8.3%.

According to Wall Street News' calculations based on the released semi-annual reports, the total net profit attributable to the parent company (attributable to shareholders) of 15 mainstream passenger vehicle companies was approximately RMB 20.2 billion, a decrease of approximately 45% compared to approximately RMB 36.6 billion in the same period last year. 12 companies experienced a deterioration in performance, and 8 companies suffered losses. The total net profit attributable to the parent company of 8 commercial vehicle companies was approximately RMB 9 billion, an increase of approximately 19% year-on-year. All of them were profitable, with 6 of them increasing their profits.

Behind the two sets of profits are two different business logics.

Behind the divergence in sales volume lies the clash between two profit models at different stages of their cycles.

When passenger vehicle sales decline, investment in new cars, intelligent technology, and channels still needs to continue, and profits are squeezed by the triple pressure of transaction prices, product cycles, and expense ratios; while commercial vehicles release economies of scale driven by replacement demand, exports, and the decline in operating costs of new energy vehicles.

What truly sets off the interim reports is a company's ability to convert sales volume into gross profit, and then into cash. However, the performance of sales only explains half of this divergence.

01 Beyond the price war, passenger vehicles are also paying for model replacements

The profit pools of the 15 passenger vehicle companies exhibit a distinct bipolar structure.

The seven profitable companies earned a total of approximately 38.6 billion yuan, while the eight loss-making companies incurred a total loss of approximately 18.4 billion yuan. BYD, Geely, Chery, and SAIC contributed a total of approximately 35.1 billion yuan, accounting for over 90% of the total profits of the profitable companies. Li Auto, Seres, and Great Wall Motors earned a total of approximately 14.3 billion yuan less than the same period last year, while NIO reduced its losses by approximately 10.8 billion yuan during the same period.

The pressure on the demand side primarily comes from the domestic market. In the first half of the year, domestic sales of passenger vehicles reached 8.288 million units, a year-on-year decrease of 24.3%, while exports increased by 71.7% to 4.432 million units. The contraction in domestic demand increased the pressure on terminal promotions and weakened the cost-spreading effect for the domestic market; the growth in exports, to some extent, offset the decline in domestic sales.

As models enter a replacement cycle, clearing out old inventory lowers transaction prices, while the ramp-up of new models increases manufacturing and marketing costs. Meanwhile, R&D, personnel, and channel expenses are difficult to reduce simultaneously, thus amplifying sales fluctuations into profit fluctuations.

Seres vividly illustrates this chain of events. The company's revenue decreased by 7.87% to 57.493 billion yuan, turning from a profit of 2.941 billion yuan to a loss of 1.717 billion yuan; R&D expenses increased by 27.44% to 3.734 billion yuan, and operating cash flow turned from a net inflow of 14.437 billion yuan to a net outflow of 12.376 billion yuan.

Seres attributed its declining performance to changes in its product sales structure, the transitional phase of its main models' iterations in the second quarter, and temporary price increases and asset impairments related to core components such as batteries and chips. While revenue decreased, operating costs only decreased by 0.56%, squeezing profit margins.

The costs of upgrading extend beyond current expenses. Seres' semi-annual report shows that it recognized approximately RMB 1.57 billion in impairment losses on intangible assets this period, mentioning impairment losses on some existing assets with limited adaptability. While new technologies continue to be invested in, the expected recovery of some older technology assets has been lowered, resulting in both costs being recorded in current profit and loss.

Ideal's profit turned from 1.743 billion yuan to a loss of 3.981 billion yuan. The two companies' combined profit reduction was approximately 10.4 billion yuan, reflecting the simultaneous impact of the replacement of their main products on revenue, expenses, and cash flow.

For companies that rely on a few main models, model replacements not only affect sales but also increase expense ratios and reduce cash flow, thus amplifying the product cycle into a profit cycle.

Some companies maintained their gross profit margin, but the pressure came after gross profit.

BYD's net profit attributable to shareholders decreased by 20.54% to RMB 12.325 billion, while its gross profit margin increased by 0.84 percentage points to 18.85%, and its operating cash flow increased by 17.28% to RMB 37.334 billion. Geely's gross profit margin increased by 1.6 percentage points to 17.9%, while its net profit attributable to shareholders decreased slightly to RMB 9.091 billion, and its core net profit attributable to shareholders increased by 46% as defined by the company.

Exchange rates had a significant impact, and economies of scale were somewhat weakened. While gross profit margins were maintained, expenses and other losses continued to squeeze final profits.

SAIC and Chery both showed an increase in overall gross profit margin but a decrease in statutory profit. Expenses, foreign exchange, impairment, and one-time gains from the previous year amplified the gap between reported profit and main operating profit.

This divergence indicates that the overall gross profit margin of some leading companies is still supported, but expenses, foreign exchange, impairment and other gains and losses have a significant impact on statutory profits.

As delivery volume expands, some emerging players have seen their losses improve, but gross profit margin trends vary among companies.

NIO's revenue increased by 85.9%, and the loss attributable to shareholders narrowed from RMB 12.035 billion to RMB 1.218 billion; Leapmotor's revenue increased by 57.2%, achieving a profit of RMB 210 million, but the gross profit margin decreased from 14.1% to 11.7%.

In its mid-year strategy report for 2026, GF Securities believes that scale, operational efficiency, and diversified powertrain strategies form the foundation for automakers to navigate economic cycles, while product differentiation determines whether a company can obtain excess profits.

According to Huachuang Securities' financial report summary on September 8, the gross profit margin of passenger vehicle sample companies (excluding SAIC) increased by 0.3 percentage points year-on-year in the second quarter, while the expense ratio increased by 1.4 percentage points.

According to the interim report, scale itself is not equivalent to profitability. Product succession, cost control and pricing stability still determine whether scale can be converted into sustainable profits.

02 The commercial vehicle heavy truck cycle, exports, and electrification create a profit resonance.

The starting point for improved profits in commercial vehicles lies in their function as production tools.

In the first half of the year, domestic sales of commercial vehicles increased by 0.8% to 1.633 million units, while exports increased by 32.5% to 664,000 units, with the latter contributing about 90% of the sales increase. The domestic market was nearly flat, with new orders mainly coming from overseas. Calling this growth a full-industry upgrade cycle would overestimate the support from domestic demand.

According to GF Securities' calculations, heavy trucks typically enter a replacement cycle every 5-8 years, with a replacement rate of approximately 1/11 in 2025, lower than the historical range. In the first half of the year, domestic sales of commercial vehicles increased by 0.8% to 1.633 million units; exports increased by 32.5% to 664,000 units, contributing nearly 90% of the sales increase; heavy truck sales increased by 22.6%, while light truck sales increased by only 1.3%.

The replacement of existing stock and the expansion of external demand have given heavy trucks greater profit elasticity.

Profit increments are also concentrated along this structure.

China National Heavy Duty Truck Group Co., Ltd. (using the 03808.HK standard, excluding its A-share listed subsidiaries) reported a net profit attributable to the parent company of RMB 4.325 billion, accounting for nearly half of the sample; this represents an increase of approximately RMB 900 million year-on-year, accounting for approximately 63% of the profit increase.

The company sold 188,500 heavy trucks, with 108,400 exported, resulting in export revenue increasing by 54% to 30.912 billion yuan. Revenue increased by 39.24%, and net profit increased by 26.22%. According to the financial report, the gross profit margin decreased from approximately 15.1% to 13.9%.

China National Heavy Duty Truck Group's sales and export growth continue to provide significant support for profits. While revenue and profits have maintained growth, gross profit margin has declined, indicating that the improvement in the business environment in the first half of the year was primarily reflected in scale expansion, while the profitability per vehicle has not increased accordingly.

Economies of scale are more directly reflected in the financial statements of Foton and FAW Jiefang.

Foton Motor's sales of medium and heavy trucks increased by 39.3%, revenue increased by 10.86%, net profit attributable to the parent company increased by 16.54%, and net profit excluding non-recurring items increased by 41.04%. FAW Jiefang's revenue increased by 33.81%, and its net profit excluding non-recurring items turned from a loss of 377 million yuan to a profit of 33.17 million yuan.

The simultaneous improvement in revenue and non-GAAP profit suggests that the recovery in sales volume may have led to a certain effect of diluting fixed costs. Compared to the low base increase of 1459% in net profit attributable to the parent company, the positive growth in non-GAAP profit better reflects the improvement in the main business operations.

New energy heavy trucks offer another path to profit.

In the first half of the year, domestic sales of new energy commercial vehicles increased by 40.2%, with a penetration rate of 30.4%. For ports, mining areas, and other locations with long and fixed routes, the price difference between oil and electricity can more quickly cover the purchase price difference.

A senior industry analyst told Wall Street Insights that the growth of new energy commercial vehicles is based on the fact that the total life cycle cost of some scenarios is already lower than that of gasoline vehicles. The economic calculation for new energy heavy trucks is composed of purchase cost, energy costs, and operational efficiency. Expansion into long-haul routes depends on range, load capacity, refueling capabilities, and residual value.

Buses and light commercial vehicles define the boundaries of the business cycle. King Long and Zhongtong saw net profits increase by 137.6% and 48.5% respectively; Yutong's net profit attributable to shareholders decreased by 3.52%, but its non-GAAP net profit increased by 15.83%; Jiangling's net profit increased by only 0.83%, and CIMC Vehicles saw increased revenue but not increased profit.

China National Heavy Duty Truck Group (CNHTC) alone accounts for nearly half of the profits in the commercial vehicle sample and more than 60% of the profit increase. This weighting has already limited the scope of "peaceful times": the increase in exports and the leading heavy truck manufacturer has raised the total figure for the sector.

03 Exports take over from domestic demand; the next battleground is profit quality.

Both passenger cars and commercial vehicles are leveraging overseas orders to expand their revenue streams. As the proportion of exports increases, competition has also extended to overseas sales and service.

According to data from the China Association of Automobile Manufacturers (CAAM) cited by the Ministry of Industry and Information Technology, China's automobile exports reached 5.096 million units in the first half of the year, a year-on-year increase of 65.3%; among which, exports of new energy vehicles reached 2.355 million units, an increase of 120%. Chery's overseas revenue share rose from 46.3% to 69.1%, while BYD exported 792,000 vehicles, an increase of 68%.

For leading companies with large export volumes, such as Chery and BYD, overseas markets are no longer just a channel to supplement sales, but also an important business for improving capacity utilization and sharing platform and R&D costs.

Competition in overseas markets is shifting from export volume to the quality of overseas operations. Shipping costs, tariffs, certifications, local channels, after-sales spare parts, and the ramp-up of overseas factories all consume gross profit. Wholesale to distributors is only an intermediate link in the sales chain.

Great Wall recognized RMB 2.274 billion in overseas tax policy-related subsidies in the same period last year, while its foreign exchange gains decreased by RMB 1.759 billion this period; Chang'an's foreign exchange gains turned from a net gain of RMB 1.356 billion to a net loss of RMB 230 million.

With the expansion of overseas business, regional pricing, channel inventory, exchange rate management, and cash collection jointly determine export profits.

Domestic channels determine whether sales volume and financial revenue are matched.

Data from the China Automobile Dealers Association shows that the comprehensive inventory coefficient for automobile dealers in June was 1.58, an increase of 11.3% year-on-year, exceeding the association's warning level of 1.5; the month-end inventory was approximately 2.5 million vehicles. If the gap between manufacturer wholesale and terminal retail continues to widen, inventory pressure may be reflected in the profit statement with a lag through discounts, rebates, production cuts, or impairment.

BYD's profits declined, but its operating cash flow increased to 37.334 billion yuan, while Seres' net inflow of 14.437 billion yuan turned into a net outflow of 12.376 billion yuan, thus highlighting the difference in their operating status.

Commercial vehicles also need to address the issue of the quality of growth. Overseas heavy truck orders are related to mining, infrastructure, and the local financing environment, and entering new markets requires establishing service outlets and spare parts systems; domestic demand, on the other hand, is determined by freight volume, freight rates, and replacement cycles.

Data from the National Bureau of Statistics shows that profits of large-scale automobile manufacturing enterprises fell by 19.5% in the first half of the year, while profits of large-scale industrial enterprises increased by 18.7% during the same period, indicating that the overall profitability of the automobile industry is still contracting.

A research report from Soochow Securities summarized the domestic automobile demand in the second quarter as better for heavy trucks and buses than for passenger cars and auto parts; CICC believes that the recovery speed of passenger car profitability in the second half of the year will be affected by factors such as orders for high-end models, stability of terminal prices, contribution of export profits and channel inventory.

In the face of industry differentiation, the aforementioned industry analyst said that whether the recovery in sales can be converted into profits depends on the rebalancing of new car investment, pricing system and channel inventory.

The relative resilience of commercial vehicles stems from heavy-duty truck upgrades, exports, and electrification in various scenarios, but its sustainability still depends on changes in freight demand, overseas orders, and the economic viability of new energy vehicles.

When old technologies need to be devalued, channel inventory needs to be sold off, and past purchase payments are due, the operating costs of automobiles do not end with the half-year report closing. Commercial vehicles have taken on a surge in orders that could boost profits, while passenger vehicles are experiencing a mismatch between investment and return during the transition between old and new products. Sales performance differs between the two, but profits for both depend on the same thing: whether the new revenue can cover the costs incurred.

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