Orient Securities has released a research report stating that in the second quarter, weak domestic auto demand, intensifying market competition, rising raw material prices, and exchange rate fluctuations combined to weigh on automakers' profitability and gross margins across the board. However, after stripping out the impact of foreign exchange, some companies with stronger overall competitiveness and higher operational management efficiency still managed to achieve year-on-year improvement in net profit attributable to parent and gross margins. The report expects that continued export growth in the second half and a diminishing marginal impact from foreign exchange will help drive marginal improvement in the performance of certain highly competitive companies, and recommends continued attention to select competitive overseas vehicle exporters, liquid cooling supply chain, gas generator/diesel generator supply chain, and humanoid robot supply chain companies.
Second-quarter industry revenue grew modestly while profit came under year-on-year pressure
In the first half of 2026, the auto industry (data covering both listed and non-listed companies) recorded revenue of 5.19 trillion yuan, up 1.9% year-on-year, while total profit fell 20.1% year-on-year to 195.35 billion yuan. In the second quarter, the auto industry (data covering both listed and non-listed companies) generated revenue of 2.78 trillion yuan, up 3.2% year-on-year and up 15.1% quarter-on-quarter, while total profit declined 21.9% year-on-year to 117.0 billion yuan, up 49.3% quarter-on-quarter. The report expects that high oil prices and weak macroeconomic conditions will continue to suppress domestic fuel vehicle demand in the second half, but the strong export growth trend is likely to continue and the foreign exchange impact is expected to diminish marginally, keeping auto industry revenue and profitability stable in the second half.
Second-quarter industry profitability under broad pressure with significant company divergence; excluding foreign exchange, some highly competitive companies outperformed the average
In the second quarter, the vehicle manufacturing industry (data covering SW passenger vehicles and SW commercial vehicles) recorded total revenue of 613.525 billion yuan, up 0.5% year-on-year and up 19.2% quarter-on-quarter. The auto parts industry (data covering SW auto parts) recorded revenue of 412.155 billion yuan, up 9.7% year-on-year and up 9.5% quarter-on-quarter. In the second quarter, vehicle company revenue performance diverged, while most parts companies saw year-on-year revenue growth. The year-on-year decline in net profit attributable to parent for the parts industry was smaller than that of the vehicle manufacturing industry.
Gross margin and profit divergence across segments
In the second quarter, passenger vehicle company gross margins were broadly mixed, commercial vehicle company gross margins improved overall, and parts company gross margins came under year-on-year pressure across the board. Passenger vehicle company profits were broadly under year-on-year pressure, while commercial vehicle company profits improved overall. In the second quarter, under the impact of exchange rate fluctuations, rising raw material prices, and other external factors, profit growth for most parts companies slowed; excluding the foreign exchange impact, some parts companies are expected to see significant year-on-year improvement in second-quarter profit growth, outperforming the auto parts industry average.
Inventory: vehicle company inventory ratios rose in Q2, industry inventory turnover under year-on-year pressure
In the second quarter, vehicle inventory rose significantly while parts manufacturer inventory continued to edge up, with the share of inventory in current assets remaining relatively stable. The increase in vehicle inventory was mainly driven by inventory growth at certain automakers. Parts industry inventory as a share of current assets stood at 22.1%, relatively stable year-on-year and quarter-on-quarter. At the end of the second quarter, average inventory turnover days for vehicle companies increased year-on-year, while parts company inventory turnover came under broad pressure with internal divergence.
Cash flow: vehicle cash flow diverged in Q2 while parts companies improved overall
In the second quarter, vehicle cash flow edged down year-on-year while parts companies improved overall. Cash flow performance diverged between passenger vehicle and parts companies, with commercial vehicle companies outperforming passenger vehicle companies.
Risk warnings
Macroeconomic downturn affecting auto demand, upstream raw material price volatility, and pressure from automaker price wars.