Rising Raw Material Costs Prompt Automakers To Cut Internal Costs

The upward pressure on raw material prices has evolved into a comprehensive stress test for the automotive sector, compressing profit margins and redefining the industry’s threshold for viability. At Chery Group’s first post‑listing earnings meeting on March 18, Vice President Qi Shilong acknowledged that raw material inflation is a major concern this year and said the company intends to offset these cost increases by improving supply‑chain operational efficiency so as not to undermine margin improvement. He noted that lithium carbonate and other inputs are exhibiting cyclical volatility and that copper and various chemical materials have been affected by the Middle East conflict. Chery plans to pursue cost reductions through technical measures, including substituting aluminum for copper in wiring harnesses, while observing that storage chips account for a limited share of per‑vehicle cost.

On the same day, Geely Automobile Group Chief Financial Officer Dai Yong told investors at the company’s 2025 results briefing that raw material prices follow cyclical patterns and can be hedged through appropriate measures. He emphasized that scale‑driven cost reductions make the impact of upstream commodity price increases manageable.

Since the second half of 2025, prices for automotive‑grade memory chips have climbed sharply. A UBS report indicates that over the past three months overall prices for automotive memory chips rose by about 180%, with DDR4 memory up more than 150% and DDR5 surging as much as 300%. HSBC research estimates that the rise in memory chip prices alone could add approximately RMB 1,000 to RMB 3,000 to the cost of a single electric vehicle. NIO Chairman William Li identified memory chip inflation as the largest cost pressure for companies in 2026, noting the intense competition for chips from AI and compute centers.

Concurrently, cyclical rebounds in nonferrous metals have imposed additional burdens on vehicle manufacturers. Since late 2025, prices for copper, aluminum and lithium carbonate have generally increased. Shanghai aluminum once exceeded RMB 25,000 per ton, a near‑20‑year high, while copper surpassed RMB 100,000 per ton, with price volatility widening to 9.9% in mid‑January. Battery‑grade lithium carbonate rose from RMB 75,000 per ton in July 2025 to roughly RMB 170,000 per ton by March 2026, an increase approaching 130%, which translates into an added RMB 3,000 to RMB 5,000 in per‑vehicle battery costs. Multiple institutions have observed strong speculative sentiment in lithium futures after the Lunar New Year and a broadly bullish market outlook, with a consensus view that lithium carbonate prices are likely to continue rising.

UBS investment banking research projects that, under the combined pressures of stimulus tapering in early 2026, the restoration of purchase taxes and rising commodity costs, the cost of a typical mid‑sized intelligent electric vehicle could increase by RMB 4,000 to RMB 7,000.

Faced with these compounded pressures, automakers are implementing internal cost‑reduction measures to balance profitability and cash flow. On March 12, Li Auto President Ma Donghui said during the company’s 2025 earnings call that rising prices for power batteries and core components have materially affected per‑vehicle costs. He described efforts to strengthen collaboration with suppliers to stabilize prices and secure supply, including signing long‑term LTA agreements to lock in prices or volumes, adhering strictly to contractual adjustment mechanisms where they exist, and sharing cost burdens with suppliers when no such mechanisms are in place. Ma added that the company will also seek to absorb costs through R&D efficiency gains and will price new models by weighing component costs against user value, expressing confidence that these measures can contain the impact of raw material inflation within a reasonable range.

A day earlier, William Li noted that increases in memory and other raw material prices have raised costs for high‑end new energy vehicles by RMB 3,000 to RMB 5,000 respectively, with a combined effect approaching RMB 10,000, and stated that NIO’s current systems can accommodate this pressure without immediate price adjustments.

Leapmotor Vice President Li Tengfei commented on March 16 that the transmission of raw material price increases to vehicle costs occurs through multiple channels and therefore does not manifest instantaneously. He explained that the company’s response centers on raising the proportion of self‑developed and self‑manufactured core components; in 2025 Leapmotor began mass production of compressors and thermal management systems and deepened in‑house development of high‑value parts such as seats and bumpers. Li characterized raw material inflation as a phase of cyclical volatility that the industry has weathered previously and expressed the view that cost‑control measures implemented in 2026 should effectively offset the impact, leaving overall gross margins largely unaffected.