While both sectors share the label of automakers, passenger vehicle companies are sacrificing profits during a model transition period, whereas their commercial vehicle counterparts are buoyed by a surge in new orders. The contrast revealed in their half-year reports is more nuanced than a simple price war.

During the first half of 2026, data from the China Association of Automobile Manufacturers (CAAM) shows passenger vehicle sales fell 6% year-on-year to 12.72 million units, while commercial vehicle sales climbed 8.3% to 2.297 million units.

Calculations based on published interim reports indicate that 15 major passenger car manufacturers collectively posted net profits attributable to shareholders of roughly RMB 20.2 billion, a steep decline of about 45% from the RMB 36.6 billion recorded a year earlier. Of these, 12 saw earnings deteriorate, and eight slipped into losses. Conversely, eight commercial vehicle makers together generated around RMB 9 billion in net profit, up nearly 19% year-on-year, with all remaining profitable and six reporting higher earnings.

Behind these two profit pictures lie two entirely different operating models in action.

The divergence in sales numbers reflects a clash of two profit models sitting at different points in their cycles. As passenger car sales soften, investments in new models, smart driving technology, and dealership networks must continue, leaving margins squeezed by lower transaction prices, product lifecycles, and rising expense ratios. Commercial vehicles, meanwhile, are leveraging economies of scale driven by replacement demand, exports, and falling operating costs for new energy models. What the interim results truly expose is each company's ability to convert sales into gross profit, and then into cash flow. Yet, the warmth or chill of sales figures only tells half the story of this divergence.

Beyond the Price War, Passenger Car Makers Foot the Bill for Model Renewals

The profit pool of the 15 passenger car companies is starkly bifurcated. Seven profitable firms earned a combined RMB 38.6 billion, while eight loss-makers racked up total losses of RMB 18.4 billion. BYD, Geely, Chery, and SAIC contributed roughly RMB 35.1 billion, accounting for over 90% of the profits generated by profitable companies. In contrast, Li Auto, SERES, and Great Wall Motor collectively earned about RMB 14.3 billion less than in the same period last year, while NIO reduced its losses by approximately RMB 10.8 billion year-on-year. Pressure on demand first emerged from the domestic market. Domestic passenger car sales fell 24.3% year-on-year to 8.288 million units in H1, while exports surged 71.7% to 4.432 million units. The contraction in domestic demand intensified promotional pressure at dealerships and weakened the cost-dilution effect for locally-focused sales; export growth only partially offset the decline in domestic volumes. As model cycles turn over, clearing out old inventory depresses transaction prices, while ramping up new models raises manufacturing and marketing costs. R&D, staffing, and channel expenses are hard to trim simultaneously, amplifying sales fluctuations into wider profit swings.

SERES exemplifies this transmission chain. The company's revenue fell 7.87% to RMB 57.493 billion, swinging from a profit of RMB 2.941 billion to a loss of RMB 1.717 billion. R&D expenses surged 27.44% to RMB 3.734 billion, and operating cash flow flipped from a net inflow of RMB 14.437 billion to a net outflow of RMB 12.376 billion. SERES attributed the decline to shifts in product sales mix, a transitional period for its main models in Q2, and temporary price increases for core components like batteries and chips, along with asset impairments. While revenue fell, operating costs only dipped 0.56%, squeezing gross margin first. The cost of model renewal extends beyond current-period expenses. SERES' interim report shows an impairment of approximately RMB 1.57 billion on intangible assets, mentioning provisions for certain existing assets with limited adaptability. As investment pours into new technologies, the recovery expectations for some legacy tech assets have been downgraded, with both hitting the current income statement simultaneously.

Li Auto also swung from a profit of RMB 1.743 billion to a loss of RMB 3.981 billion. Together, these two companies erased about RMB 10.4 billion in profits, underscoring how flagship model overhauls can simultaneously impact revenue, expenses, and cash flow. For firms reliant on a few key models, updating a product line not only hurts sales but also elevates expense ratios and slows cash collections, magnifying the product cycle into a profit cycle. Some companies, however, held the line on gross margin, with pressure building further down the income statement.

BYD saw net profit attributable to shareholders fall 20.54% to RMB 12.325 billion, even as its overall gross margin improved 0.84 percentage points to 18.85% and operating cash flow grew 17.28% to RMB 37.334 billion. Geely improved its overall gross margin by 1.6 percentage points to 17.9%, while net profit attributable to shareholders dipped slightly to RMB 9.091 billion; however, its core net profit, as defined by the company, grew 46%. Exchange rate effects were significant, and economies of scale weakened somewhat. Even with gross margins defended, expenses and other gains or losses continued to weigh on final profits.

SAIC and Chery similarly reported higher overall gross margins but lower statutory profits. Expenses, exchange rate fluctuations, impairments, and one-off gains from the prior year amplified the gap between reported profits and core operational performance. This divergence suggests that while gross margins at some leading firms remain resilient, expenses, FX impacts, impairments, and other income or charges are materially affecting statutory earnings. As delivery volumes expanded, some new energy vehicle startups improved their losses, though gross margin trends varied across companies. NIO grew revenue 85.9%, narrowing its shareholder-attributable loss from RMB 12.035 billion to RMB 1.218 billion. Leapmotor lifted revenue 57.2% and turned a profit of RMB 210 million, but its gross margin slipped from 14.1% to 11.7%.

In its mid-2026 strategy outlook, GF Securities argued that scale, operational efficiency, and diversified powertrain strategies form the foundation for automakers to navigate cycles, while product differentiation determines whether a company can secure excess profits. A September 8 earnings review by Huachuang Securities showed that for a sample of passenger car companies (excluding SAIC), Q2 gross margins improved 0.3 percentage points year-on-year, but period expense ratios rose 1.4 percentage points. The interim reports make clear that scale alone does not equal profitability; product continuity, cost control, and pricing stability are what determine whether scale translates into sustained earnings.

Commercial Vehicles: Heavy Truck Cycle, Exports, and Electrification Create a Profit Resonance

The starting point for improved commercial vehicle profits lies in their nature as production tools. In H1, domestic commercial vehicle sales edged up 0.8% to 1.633 million units, while exports grew 32.5% to 664,000 units, with the latter contributing nearly 90% of the sales increase. With the domestic market nearly flat, new orders came primarily from overseas. Calling this round of growth an industry-wide replacement cycle would overstate the support from domestic demand. According to GF Securities estimates, heavy trucks typically enter a replacement cycle every 5–8 years, with the replacement rate in 2025 being roughly 1/11, below the historical range. In H1, domestic commercial vehicle sales grew 0.8% to 1.633 million units, exports rose 32.5% to 664,000 units (contributing nearly 90% of the incremental sales), heavy truck sales jumped 22.6%, while light trucks inched up just 1.3%.

Stock replacement needs and expanding overseas demand gave heavy trucks stronger profit elasticity, and the profit gains clustered along this structural line. SINOTRUK (Hong Kong) Ltd (using the 03808.HK basis, excluding its controlled A-share subsidiary from double counting) reported net profit attributable to shareholders of RMB 4.325 billion, nearly half of the sample total, and an increase of about RMB 900 million year-on-year, accounting for roughly 63% of the sector's profit growth. The company sold 188,500 heavy trucks, including 108,400 for export, with export revenue rising 54% to RMB 30.912 billion. While revenue grew 39.24% and net profit rose 26.22%, its overall gross margin fell from approximately 15.1% to 13.9%, based on financial statement data. SINOTRUK's sales and export growth clearly continue to support profits, but the fact that revenue and profit grew while gross margins declined indicates that the business improvement in H1 was driven primarily by scale expansion, with per-vehicle profitability not improving in tandem.

Economies of scale manifested more directly in the results of Foton Motor and FAW Jiefang. Foton saw medium and heavy truck sales grow 39.3%, revenue increase 10.86%, net profit attributable to shareholders rise 16.54%, and non-GAAP net profit jump 41.04%. FAW Jiefang grew revenue 33.81%, and its non-GAAP net profit swung from a loss of RMB 377 million to a profit of RMB 33.17 million. The synchronized improvement in revenue and non-GAAP profit suggests some fixed-cost dilution from the sales recovery; compared with the low-base surge of 1459% in reported net profit, the swing back to positive non-GAAP profit is a better gauge of underlying operational improvement.

New energy heavy trucks offer another profit avenue. Domestic new energy commercial vehicle sales grew 40.2% in H1, with penetration reaching 30.4%. In ports, mining areas, and similar routes with high mileage and fixed paths, the fuel-electric price differential can cover the higher purchase price more quickly. A seasoned industry analyst told Wallstreetcn that the growth foundation for new energy commercial vehicles is that total cost of ownership in certain scenarios is already lower than diesel trucks. The economics of new energy heavy trucks are calculated based on purchase cost, energy expenses, and operational efficiency. Expansion into long-haul routes depends on range, payload, recharging infrastructure, and residual value.

Buses and light commercial vehicles outline the boundaries of this prosperity. King Long and Zhongtong saw net profit growth of 137.6% and 48.5%, respectively; Yutong reported a 3.52% decline in net profit attributable to shareholders but a 15.83% rise in non-GAAP profit; JMC saw net profit edge up just 0.83%, while CIMC Vehicles increased revenue but not profit. With SINOTRUK alone contributing nearly half of the commercial vehicle sample's profits and over 60% of its profit growth, this weighting already limits the scope of "smooth sailing": the gains from exports and the heavy truck leader lifted the sector aggregate.

Exports Take Over From Domestic Demand; The Next Battle Is Profit Quality

Both passenger and commercial vehicle makers are expanding revenue sources through overseas orders. As the export share rises, competition extends into overseas sales and service operations. Citing CAAM data, the Ministry of Industry and Information Technology noted that H1 auto exports totaled 5.096 million vehicles, up 65.3% year-on-year, including 2.355 million new energy vehicles, a 1.2-fold increase. Chery's overseas revenue share rose from 46.3% to 69.1%, while BYD exported 792,000 vehicles, up 68%. For export-heavy leaders like Chery and BYD, overseas markets are no longer just an additional sales channel but a key business for improving capacity utilization and spreading platform and R&D costs.

The competition overseas is also shifting from export volume to the quality of overseas operations. Shipping, tariffs, certification, local distribution channels, after-sales spare parts, and the ramp-up of overseas plants all eat into gross margins, and wholesale to dealers is merely an intermediate step in the sales chain. Great Wall Motor recognized RMB 2.274 billion in subsidies related to overseas tax policies in the same period last year, while its FX gains fell by RMB 1.759 billion year-on-year. Changan saw its FX position swing from a net gain of RMB 1.356 billion to a net loss of RMB 230 million. As overseas operations expand, regional pricing, channel inventory, currency management, and cash collection collectively determine export profitability.

Domestic channels, meanwhile, dictate whether sales figures align with financial revenue. Data from the China Automobile Dealers Association shows the comprehensive dealer inventory coefficient was 1.58 in June, up 11.3% year-on-year and exceeding the association's 1.5 warning level; month-end inventory stood at roughly 2.5 million vehicles. If the gap between manufacturer wholesale and retail sales at dealerships continues to widen, inventory pressure could show up in profit statements with a lag through discounts, rebates, production cuts, or impairments. BYD saw profits fall but operating cash flow rise to RMB 37.334 billion, while SERES swung from a net inflow of RMB 14.437 billion to a net outflow of RMB 12.376 billion, highlighting the divergence in their operating positions. Commercial vehicle makers also face questions about growth quality. Overseas heavy truck orders are tied to mining, infrastructure, and local financing conditions, and entering new markets requires establishing service networks and parts systems; domestic demand is driven by freight volumes, shipping rates, and replacement cycles.

National Bureau of Statistics data shows that profits in the auto manufacturing industry (above designated size) fell 19.5% in H1, even as profits for all industrial enterprises above designated size grew 18.7%, indicating the auto industry's overall profitability is still contracting. A research note from Soochow Securities characterized Q2 domestic auto demand as stronger for heavy trucks and buses than for passenger cars and components; CICC believes the pace of passenger car profit recovery in H2 will be influenced by premium model orders, terminal price stability, export profit contributions, and channel inventory levels. In the face of this sector divergence, the aforementioned industry analyst said that whether a sales recovery can be converted into profits depends on rebalancing new model investments, pricing structures, and channel inventories.

The relative resilience of commercial vehicles stems from heavy truck replacement demand, exports, and scenario-based electrification, but its sustainability hinges on changes in freight demand, overseas orders, and the economics of new energy models. When legacy technology requires impairments, channel inventory needs promotional discounts, and past procurement payments come due, the operating costs of automaking do not end with the interim report settlement. Commercial vehicles captured enough order growth to drive profits, while passenger car makers are bearing the mismatch between investment and returns during the product transition. Though their sales performances differ, profits in both camps hinge on the same question: can new revenue cover the cost of generating it?