The Chinese market has become a low-profit zone, and multinational automakers are scrambling to seek new business strategies.
In the financial reports of multinational automakers, the Chinese market has evolved from a "profit cash cow" to a "profit lowland", and even started to erode their global profits. To stop losses as soon as possible, multinational automakers have chosen to redefine their Chinese assets, revitalize idle production capacity and restore profit-generating capacity through impairment provision and building export bases.
Entering the earnings season, many multinational automakers have successively released their third-quarter performance reports. Overall, multinational automakers can still maintain revenue on their global overall business, but their profits have been severely squeezed, showing a trend of "simultaneous decline in volume and profit" in the Chinese market. Among them, the investment income of Volkswagen's two major joint ventures in China turned negative for the first time. After re-evaluation, Volkswagen booked 1 billion euros (about 7.44 billion yuan) of impairment on its Chinese assets, becoming another multinational automaker that lowered the asset valuation of its joint venture after Mercedes-Benz.
In October this year, the monthly retail penetration rate of new energy passenger vehicles in China has reached 67%, and the retail share of fuel vehicles fell below one-third for the first time. Multinational automakers with slow transformation of electrification business have therefore suffered heavy losses in the Chinese market. Leading multinational automakers including Volkswagen, Mercedes-Benz, BMW, as well as Toyota, Honda and General Motors are all facing structural profit pressure in China: on the one hand, the rapid shrinkage of the fuel vehicle market and the decline of gross profit have further reduced the profit base of joint-venture brands; on the other hand, although the sales of electric vehicles have increased, the "electrification gross profit trap" (the more electric vehicles are sold, the thinner the new marginal profit becomes) has become increasingly prominent.
To cope with the impact, multinational automakers have focused their transformation investment on localized R&D and technical cooperation in China. In addition, many joint-venture automakers have announced export plans, taking China as their global export base, so as to revitalize idle domestic production capacity and ease profit pressure.
Three German Luxury Automakers: Approaching the Break-even Line
Judging from the financial reports, in the third quarter of this year, the performance differentiation of multinational automakers has further intensified. But the same point is that the growth of multinational automakers in other global markets has been hedged by the decline in the Chinese market. Among them, the profit pressure on German luxury brands is obvious.
Mercedes-Benz and BMW continue to show the overall characteristics of "growing sales in Europe and the United States, sharp decline in sales in China, and pressure on core automotive profits". Affected by the low base in the same period last year, Mercedes-Benz's book profit in the third quarter was repaired, with net profit increasing by 28% year-on-year, but the adjusted operating profit of the passenger vehicle business halved year-on-year to 560 million euros (about 4.17 billion yuan); the total operating profit in the first three quarters was 2.402 billion euros (about 17.87 billion yuan), down 42% year-on-year. In terms of return on passenger car sales, it has dropped to only 2.5% in the third quarter, nearly half lower than the 4.8% in the same period last year.
In the third quarter, Mercedes-Benz's deliveries in China decreased by 31% year-on-year, and the cumulative deliveries in the first three quarters decreased by 29% year-on-year. Affected by the sluggish Chinese business and the decline in sales of high-end models, the EBIT cash flow of Mercedes-Benz's passenger vehicle business turned negative.
Statistics from the China Passenger Car Association show that China's luxury car market shrank overall in the first three quarters, down about 30% year-on-year in September, and fuel luxury cars down about 40% year-on-year. This change is directly transmitted to the profit statements of German luxury car giants.
Mercedes-Benz executives said frankly that the Chinese business has experienced multiple rounds of shocks, and the continued sluggish sales of its high-end models exceeded expectations. Mercedes-Benz is comprehensively reviewing and re-planning its market scale and strategy. Mercedes-Benz said at its third-quarter earnings call that significantly increasing the proportion of localized procurement in China will be part of the new plan.
The situation of the BMW Group is more severe. In the third-quarter financial report announced on November 4, BMW lowered its annual profit guidance for the second time this year, directly lowering the EBIT margin guidance for the automotive business in FY2026 from 1%-3% to -0.5%-0.5%, approaching the break-even line. The financial report shows that in the third quarter, BMW's automotive business EBIT was 901 million euros (about 6.7 billion yuan), down 39.7% year-on-year, and the operating profit margin fell to 3.4%.
In the third quarter, BMW delivered 114,400 vehicles in China, a year-on-year decline of 24.8%; the cumulative delivery in the first three quarters was about 376,000 vehicles, down about 21.8% year-on-year. The new generation of models has been launched in the Chinese market, and BMW expects that the iX3 electric vehicle, which will be delivered on a large scale in China starting from November, can partially improve the current passive situation.
Compared with Mercedes-Benz and BMW, Audi has suffered a more severe impact: although its European basic market can still be stabilized, plug-in hybrid models are growing rapidly, and cash flow remains positive, the profit in the third quarter alone has nearly bottomed out, down 93.9% year-on-year; the return on operating sales has dropped from 3.0% in the same period last year to only 0.2%, close to the break-even line.
The decline in Chinese business is the main reason for Audi's rapid profit loss. In the first three quarters, Audi's sales in China fell by 24.5% year-on-year. Due to large concessions at the terminals of main fuel vehicles and the decline in the share of high-profit models, most of the incremental volume are low-gross-margin entry-level models and pure electric products that are still in the investment period. The financial income from Chinese business has dropped by 90% to 38 million euros (about 280 million yuan), compared with 386 million euros (about 2.87 billion yuan) in the same period last year. It is worth noting that before the release of the third-quarter financial report, Audi announced the brand separation plan in China: FAW Audi operates the four-ring brand, and SAIC Audi focuses on the AUDI letter logo pure electric brand. This crisis-ridden financial report also adds a footnote to Audi's current restructuring of its architecture in China.
In view of the increasing profit pressure in the first three quarters, the three major German luxury car groups have chosen to lower their full-year expectations.
North American and Japanese Automakers: Rely on Other Markets, Lower China Expectations
Under the industrial protection policies, North American automakers have relatively stable profits in the first three quarters. Pickups, large SUVs and hybrid models are still the main products of General Motors and Ford. Benefiting from the strong North American business, General Motors' financial indicators rose across the board in the third quarter, and the net profit attributable to shareholders reached 3.335 billion US dollars (about 22.032 billion yuan), up 151.32% year-on-year, and the profit margin also increased significantly.
Compared with the strong fuel vehicle business in North America, General Motors' business in China has entered the mid-term of transformation. On the one hand, after getting rid of losses, SAIC-GM has achieved profits for eight consecutive quarters, and the sales proportion of new energy vehicles exceeds 60%, hitting a new high in the same period; on the other hand, the impact of new energy vehicles on profits has begun to further appear. In the first half of the year, General Motors received about 248 million US dollars of equity income from its joint ventures in China (SAIC-GM and SAIC-GM-Wuling), but by the third quarter, the joint venture equity income was only 32 million US dollars (about 214 million yuan), down 60.3% year-on-year.
In contrast, the performance differences between the global business and Chinese business of Toyota, Honda and Nissan are more obvious. After losing market share and competitiveness in the Chinese market, Japanese automakers have begun to rely more on their local and North American markets to increase profits.
On November 5, Toyota Motor released its financial report for the first half of FY2027 (April to September 2026). Benefiting from profit recovery in North America, exchange rate dividends and cost reduction measures, Toyota's revenue data rose across the board, continuing to show strong resilience. Among them, the net profit attributable to shareholders of the company reached 2.24 trillion yen (about 94.3 billion yuan), up 26.1% year-on-year. Toyota accordingly raised its full-year operating profit forecast for the fiscal year. At the same time, the equity income of Toyota's joint ventures in China fell by about 40% year-on-year to 28.6 billion yen (about 1.2 billion yuan), which the financial report attributed to fierce price wars and rising marketing incentives. In October this year, through capital operation, the two Toyota joint ventures in north and south China officially launched integrated collaborative integration, hoping to accelerate the pace of electrification transformation in China.
Honda and Nissan have not released the latest financial reports, but have released the full-year performance forecast for the fiscal year. Like Toyota, Honda raised its full-year operating profit forecast, driven by the automotive and motorcycle business in North America; but the Chinese market still faces the pressure of shrinking fuel vehicle base market and losses of electric vehicles. This year, Honda has promoted low-cost and rapid transformation in China by increasing local R&D and technical cooperation in China.
Nissan also benefited from the North American market, exchange rate dividends and strong cost reduction, turning losses into profits, but its performance in China declined rapidly, with cumulative retail sales from April to September plummeting by more than 40% year-on-year. Affected by the Chinese market, Nissan lowered its full-year total sales forecast. In addition, European and South Korean automakers such as Renault and Hyundai Kia have relatively stronger resilience due to their small proportion of Chinese business.
Overall, multinational automakers are still in the investment period of transforming to electric vehicles. Automakers that can keep their basic market can still maintain the development pace, while automakers with a high proportion of investment in China are under greater pressure.
Reshaping Chinese Assets: Impairment Provision and Building Export Bases
Facing the drastic changes in the Chinese automotive market, multinational automakers have to re-evaluate the value of their assets in China. Volkswagen Group has become a landmark sample.
In the first three quarters of 2026, Volkswagen Group's book operating profit was only 70 million euros (about 520 million yuan), plummeting 98.7% year-on-year compared with the same period of the previous year, mainly due to the total special item provision of 8.7 billion euros (about 64.7 billion yuan), including about 1 billion euros (about 7.4 billion yuan) of non-cash impairment of Chinese assets within the consolidated scope.
In the first three quarters of this year, Volkswagen Group's sales in China fell by 30.2% year-on-year, much higher than the 9% decline in the global market. China's local new electric models are still in the introduction period, which is not enough to hedge the loss of fuel vehicle share. Arno Antlitz, CFO and COO of Volkswagen Group, said at the earnings press conference that Volkswagen must accelerate the transformation pace, otherwise the Chinese business will face the risk of failing to break even.
Volkswagen is not the first automaker to book impairment in China. Before that, General Motors and Mercedes-Benz have carried out similar operations. General Motors booked 4.01 billion US dollars (about 26.773 billion yuan) of restructuring and impairment expenses for its Chinese business in the fourth quarter of 2024, and booked about 840 million US dollars (about 5.61 billion yuan) of expenses in 2025 due to the restructuring of the Chinese market. In the second quarter of this year, Mercedes-Benz also launched the re-evaluation of its assets in China, and booked 704 million euros (about 5.238 billion yuan) of impairment on its joint venture investments accounted for by the equity method in China.
While booking impairment, multinational automakers are also looking for risk hedging paths: upgrading their joint venture factories in China to export hubs for the whole world. Many automakers have mentioned this point in their financial reports.
Hyundai and Kia, the two South Korean joint-venture automakers, have the clearest export strategy and the fastest large-scale implementation. Yueda Kia started its overseas expansion at the end of 2018. Its cumulative exports exceeded 500,000 units in 2025, with nearly 130,000 units exported in the first 9 months of this year, hitting a record monthly high in June. Yueda Kia's Yancheng factory currently mainly serves export orders, and its new energy models produced have been exported to nearly 90 countries in Latin America, the Middle East, Australia and New Zealand and other regions. Beijing Hyundai launched large-scale exports in 2024, with the goal of hitting 120,000 units this year. Its exports in May increased by 67.1% year-on-year, and the exported models have expanded from fuel vehicles to electric vehicles.
Nissan is a Japanese automaker that has implemented its export strategy at a relatively fast pace. In April this year, Nissan positioned China as the group's global innovation and export base, relying on Dongfeng Nissan and Zhengzhou Nissan to build a closed loop of R&D, manufacturing and overseas expansion. Starting from July this year, the Frontier pickup truck and the first batch of pure electric N7, which are independently developed and produced by the Chinese team, have been shipped to Gulf countries and Southeast Asia in batches.
While renewing the contract with SAIC and extending the joint venture cooperation to 2047, SAIC-GM has also taken the overseas expansion of locally developed new energy vehicles as a new cooperation content. At present, the Buick Electra E7, as the first locally developed pure electric model for global launch, has started overseas distribution, targeting to cover the Middle East, Africa, South America, Mexico and many Asia-Pacific countries.
In addition, Ford's management mentioned at the third-quarter earnings call that the Territory produced and exported from China (Jiangling Ford Territory) has become the second most profitable model of Ford in the world. At present, the focus of Ford's business in China is shifting from local sales to using Chinese manufacturing to export to the whole world.
Dongfeng Peugeot Citroen Automobile regards export as a key support for the survival of the joint venture. Under the background of continuous sluggish domestic market share, Dongfeng Peugeot Citroen has built its domestic production base as an export node for Europe and Southeast Asia. At present, domestically produced fuel, hybrid and new energy models have been connected to Stellantis' global sales network.
The latest multinational automaker to join the export plan is the Volkswagen Group. Volkswagen announced that it will expand the export scale of its three joint ventures, with annual exports of at least 300,000 units by 2030. Among them, the locally developed electric intelligent technology system in China will be exported to markets in the southern hemisphere. As the international brand with the largest joint venture volume in China, the launch of Volkswagen's export strategy in China means that China's position in the global automotive industry is undergoing tremendous changes.
In the view of multinational automakers, China has a complete automotive supply chain, mature manufacturing capacity and localized R&D teams, making it a perfect export base. On the one hand, upgrading joint venture factories in China to global export hubs can not only digest idle production capacity, but also dilute fixed manufacturing costs with overseas orders to hedge the decline in domestic retail profits. On the other hand, China has the world's fastest responding intelligent electric vehicle supply chain and efficient development capabilities, which multinational automakers can use to fill product gaps in emerging markets.
This article is from the WeChat Official Account "The Economic Observer", written by Liu Xiaolin, and authorized for release by 36Kr.