In-Depth Analysis of Inventory Overstock Issues in China's Automotive Industry

Based on collected data and industry information, I now present a systematic and comprehensive analysis report.

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According to data from the China Automobile Dealers Association,

, up 7.5 percentage points year-on-year and 2.1 percentage points month-on-month, remaining above the 50% boom-bust line for the 12th consecutive month[1][2]. This data indicates that the prosperity of the automobile circulation industry is continuing to decline.

Brand Type	Inventory Coefficient	Month-on-Month Change	Inventory Status
Premium Luxury and Imported Brands	1.35	-14.6%	Below Alert Line
Joint Venture Brands	1.40	-17.6%	Below Alert Line
Chinese Domestic Brands	1.26	-16.6%	Below Alert Line

Note: An inventory coefficient of 1.31 is at the upper edge of the reasonable range of 0.8-1.2, and inventory pressure remains significant[3]

From a regional perspective, inventory pressure is widespread:

• The index for the Southern Region reached as high as 61.2%
• The index for the Northern Region is the lowest, but still reached 55.6%
  [4]

In December 2025, retail sales of passenger vehicles fell 14% year-on-year, while wholesale shipments by manufacturers fell 10% year-on-year.

[5], and the “scissors gap” between wholesale and retail continues to widen. This means a large number of new vehicles have not actually reached consumers, but are “circulating idle” in the distribution channels.

According to estimates,

[3].

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A survey by the China Automobile Dealers Association shows that

, with only 15.3% of dealers exceeding their annual targets[1][2]. Meanwhile, manufacturers’ practice of adding additional sales tasks at the end of the year to boost volumes has further exacerbated inventory overstock and capital shortages.

Indicator	Data	Source
Dealer loss-making ratio (2024)	Over 50%	Industry Statistics
Ratio of dealers with price inversion	74.4%	China Automobile Dealers Association
Average gross profit margin (2024)	Less than 3%	Industry Statistics
Per-unit loss (slow-selling models)	Up to RMB 10,000	Frontline Feedback

Data for the first half of 2025 shows that

, and 74.4% of dealers have price inversion issues[6]. The per-unit loss for some slow-selling models even exceeds RMB 10,000.

The capital pressure faced by dealers mainly comes from:

1. Capital occupation cost
   : Storing a RMB 200,000 vehicle for one month incurs over RMB 1,000 in interest and warehousing costs alone
2. Inventory depreciation loss
   : Price wars have accelerated the depreciation of inventory vehicles on a daily basis
3. Delayed manufacturer rebates
   : Some automakers have extended rebate cycles, exacerbating capital shortages

[6]. If the high inventory cannot be effectively digested in the first quarter of 2026, a large number of small and medium-sized dealers with tight cash flow are likely to exit the market collectively.

The industry is currently trapped in a vicious cycle:

Manufacturer forced stocking → High dealer inventory → Price cuts for promotions to maintain capital → Losses from price inversion → Profit contraction → Decline in service quality → Customer churn → Manufacturer continues forced stocking to protect performance

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, although it slightly recovered compared to the same period in 2024, it still remains at a five-year low, significantly lower than the 6% average level of downstream industrial enterprises[6].

• 2017 per-unit gross profit: Approximately RMB 23,000
• 2025 Jan-Sep per-unit gross profit: Approximately RMB 14,000
• Nearly 40% shrinkage over 8 years
  [6]

Institution	Core View	Investment Recommendation
Goldman Sachs	Domestic profit pool will shrink, overseas markets become new growth drivers	Focus on BYD, XPeng (with overseas advantages)[7]
Huachuang Securities	Expectation repair + individual stock alpha + intelligent driving component market	Recommend Geely, BYD[8]
Soochow Securities	Structural opportunities in “breaking the old and establishing the new”	Focus on leading enterprises

Affected by inventory pressure and price wars, the stock prices of major auto companies are under pressure:

• BYD’s stock price has been weak for a long time, and the market holds a cautious attitude towards the industry’s prospects
• Institutions generally expect domestic passenger vehicle retail sales growth to be between -5% and +1% in 2026[7]
• It is expected that 119 new models will be launched in 2026, significantly intensifying competition in the high-end market

1. Capital risks caused by deteriorating inventory turnover
2. Price wars continue to erode profit margins
3. Dealer exits may affect brand sales volume
4. Consumer wait-and-see sentiment leads to delayed demand release

1. Overseas export market maintains growth of over 10% (6.86 million units exported in 2026, +17% year-on-year)[8]
2. There is still room for growth in sinking markets and county-level markets
3. Accelerated popularization of new energy vehicles overseas
4. Enterprises leading in intelligent and electrification technologies are expected to weather the cycle

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BYD’s strategy is

:

• 2026 new vehicle pricing strategy
  : The entry-level Song Pro DM-i is priced at RMB 99,800[9]
• Technology democratization
  : Promote assisted driving from “high configuration” to “standard configuration”
• Overseas expansion
  : Cumulative exports reached 878,000 units from January to November 2025, surging 144% year-on-year[5]
• Capacity release
  : Adopt a dual-supplier model to ensure delivery efficiency

: BYD, relying on its scale advantages and vertical integration capabilities, can better control channel inventory levels.

Geely’s response strategy focuses on

:

• Galaxy brand sales grew 150% year-on-year
  , becoming the largest growth driver[10]
• XingYuan has sold over 40,000 units for 7 consecutive months
• Overseas layout
  : Channel preparations in regions such as Europe and ASEAN are basically in place
• Achieved 2025 target of 3 million units
  (actual 3.02 million units)

: Improve operational efficiency by streamlining the brand matrix to avoid inventory dispersion across multiple brands.

Great Wall Motors adopts a dual-track strategy of

:

• WEY brand focuses on the high-end market
  and launches new product lines
• Overseas new energy channel layout
  is basically completed
• Criticizing industry chaos
  : Wei Jianjun harshly criticized “zero-kilometer used cars”[11]

: Avoid direct price wars with leading enterprises through differentiated products.

, establishing China Changan Automobile Group[11]:

• Multi-brand synergy among Deepal, Qiyuan, and Avatr
• New energy vehicle monthly sales exceeded 125,000 units
• Accelerated overseas layout

: Optimize channel resource allocation by leveraging central enterprise integration resources.

Brand	Strategy Adjustment	Current Status
NIO	Shifted to “fourth-quarter profitability”	Annual deliveries of 326,000 units
Li Auto	Lowered targets, i8 returns to single-configuration strategy	Completion rate of 63.5%
XPeng	Exceeded target (429,000 units)	Steadily climbing
Leapmotor	2026 target of 1 million units	Annual sales of 596,000 units
Xiaomi	Exceeded annual sales target of 380,000 units	Dark horse among new force automakers

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The State Administration for Market Regulation issued the Guidelines for Compliance of Price Behavior in the Automotive Industry (Draft for Comments)[6]:

• Prohibit loss-making sales for the purpose of eliminating competitors (except for handling overstocked inventory in accordance with the law)
• Mandatory clear pricing, strictly prohibit extra charges beyond the marked price
• Sellers must specify the specific delivery date in the contract
• Issue risk warnings to dealers regarding “sales below purchase cost”

This marks the beginning of regulatory authorities’ standardization of price wars in the automotive industry, and the industry’s competition logic will shift from “price competition” to value competition in areas such as technology, services, and intelligence.

On December 30, 2025, 8 ministries including the Ministry of Commerce issued the Implementation Rules for 2026 Car Trade-In Subsidies[2]:

• Adjustment of subsidy method
  : Changed from fixed-amount subsidy to calculation based on vehicle price ratio
• More favorable for high-end models
  : The higher the vehicle price, the more the subsidy
• Subsidy intensity for mainstream-priced models remains unchanged

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Indicator	Forecast Value	Year-on-Year Change
Passenger vehicle retail sales	Approximately 24 million units	Flat or slightly increased
Passenger vehicle wholesale sales	29.85-31.26 million units	+2% to +7%
Exports	6.86 million units	+17%
New energy vehicle retail growth	Approximately 10%	Growth rate slows down

Data sources: China Passenger Car Association, Huachuang Securities forecasts[7][8]

1. Shift from “wholesale-driven” to “retail-driven”
   : Automakers need to establish a production-sales collaboration mechanism based on real retail data
2. Shift from “policy-dependent” to “product-driven”
   : Technological innovation and brand building will become core competitive elements
3. Shift from “domestic market involution” to “global layout”
   : Exports become an important growth engine
4. Price wars ease
   : Under the guidance of anti-involution policies, price reduction behaviors will be more cautious

Target	Rationale	Rating
BYD	Technological leadership, scale advantages, accelerated overseas expansion	Buy
Geely Auto	Completed brand integration, new energy breakthrough, valuation repair space	Buy
XPeng	Intelligent technology advantages, exceeded targets, entered profit cycle	Buy
Leapmotor	Cost control capabilities, overseas potential, 1 million unit target	Watch

• Risk of price wars caused by further inventory increases
• Consumer demand falls short of expectations
• Impact of policy subsidy reduction
• Risk of large-scale dealer exits

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China’s automotive industry is facing multiple challenges including inventory overstock, profit decline, and channel pressure.

For investors:

1. Short-term
   : Inventory pressure and price wars will still suppress industry valuations; it is recommended to focus on leading enterprises with cost advantages and technological barriers
2. Mid-term
   : The industry will undergo structural adjustments, and enterprises with overseas layout capabilities are expected to weather the cycle
3. Long-term
   : It is an inevitable trend for China’s automotive industry to shift from “scale competition” to “value competition”, and enterprises with technological innovation capabilities will obtain excess returns

For dealers,

and deeply explore the full-life-cycle value of after-sales services, finance, used cars, etc., to survive the industry reshuffle.

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[1] Yicai Global - Half of Dealers Failed to Meet Sales Targets Last Year

[2] CNR Online - Half of Auto Dealers Failed to Meet Sales Targets Last Year

[3] Zhitong Finance - China Automobile Dealers Association: Comprehensive Inventory Coefficient of Auto Dealers in December 2025 was 1.31

[4] Sohu Auto - Automakers Have Left Dealers Speechless

[5] China Passenger Car Association/36Kr - December 2025 National Passenger Vehicle Market Analysis

[6] East Money/Cailianshe - “Selling Cars at a Loss” May Be Banned: How Automakers Break Through Under the Red Line

[7] ETNet - Goldman Sachs Expects Automakers’ Domestic Business Profits to Be Pressured This Year, Accelerating Overseas Layout

[8] Huachuang Securities - 2026 Automotive Industry Investment Strategy: Seeking Structural Opportunities and New Industrial Directions

[9] Auto Expert - BYD “Shakes Up the Market” at the Start of the Year: Entry-Level Song Pro Priced at Only RMB 99,800

[10] 36Kr - Amid Cheers of Record Sales, Automakers Will Face a Fiercer 2026

[11] Gasgoo/The Beijing News - 60-Day Payment Term Supply Chain Reform and Exclusive Interview with Changan Auto

[12] Securities Times - 20 Automakers Offer Subsidies in the 2025 Year-End Auto Market: Why Did the “Tailwind Effect” Fail?