Gasgoo Munich- GAC Group recently released its interim earnings forecast for the first half of 2026. The numbers make for grim reading.
The automaker expects a net loss attributable to shareholders between 4.06 billion yuan and 4.57 billion yuan for the first half, with an adjusted net loss—excluding non-recurring items—ranging from 4.8 billion yuan to 5.6 billion yuan. For the same period last year, those figures stood at losses of 2.538 billion yuan and 2.945 billion yuan, respectively. In less than a year, the deficit has nearly doubled.
Even more concerning is that this bleeding occurred despite rising sales, a surge in overseas markets, and year-over-year improvement in gross margins. Scale is expanding, yet profitability is contracting—a clear sign that the traditional logic of "volume drives profit" has broken down.
Proprietary Brands Burn Cash, Joint Ventures Shrink
GAC's widening losses aren't due to a sales collapse. Instead, the problem lies in the transition from old to new business lines, where money is leaking from both sides.
Consider the proprietary brands first. Continuous investment in the energy transition is an industry-wide consensus. Spending on R&D, distribution channels, user operations, and retail promotions doesn't translate into immediate profit.
High-end electric models carry heavy costs before they reach scale, while mass-market vehicles operate on razor-thin margins. Add fluctuating raw material prices, and the profit margins for proprietary brands get squeezed from all sides.
GAC has been aggressive in positioning itself for the electric era. Its dual-brand strategy—Aion and HYPTEC—covers both the mainstream and high-end markets, with combined first-half sales climbing 88.5% to 37,000 units. Yet that volume isn't enough to prop up the group's bottom line. Instead, heavy upfront investment has made these brands a source of losses.
Image Source: GAC
Data from the China Automobile Dealers Association shows HYPTEC's manufacturer inventory index has surged, hitting 15.04 in March 2026. Li Yanwei, an expert committee member at the association, noted that this implies existing stock would take 15 months to clear even if production halted immediately—a sign of weakening market competitiveness. Yet this isn't a management error; it's a necessary phase of switching tracks.
GAC Trumpchi sold 164,000 vehicles in the first half, up 12.36% year-on-year. While its internal combustion engine base remains intact, the brand's profit margins are also buckling under the pressure of the price war.
Then there is the joint venture sector. For a long time, these brands were GAC's stable profit engine, with GAC Toyota and GAC Honda underpinning the entire group's earnings. But joint ventures rely on internal combustion vehicles, a market segment that has been steadily contracting.
Image Source: GAC
Production and sales reports reveal that GAC Honda's first-half sales totaled just 68,000 units—a sharp 55.8% year-on-year plunge. June sales alone dropped 53.03% to 14,000 units, nearly halving. Li Yanwei pointed out that GAC Honda's manufacturer inventory index has entered the "danger zone" above 4.0, meaning pressure on distribution channels is building rapidly.
GAC Toyota fared slightly better, with first-half sales of 356,000 units—a modest 3.29% increase that barely holds the line. However, June sales fell 9.4% to 64,000 units, signaling that stress at the retail level is beginning to show.
Currency fluctuations are amplifying this pressure. Exchange losses in the first half directly squeezed margins on vehicle sales and exports, contributing to the wider deficit. The positive impact of rising sales and improved gross margins simply wasn't enough to offset the shock of these internal and external costs.
The Logic of Scale Competition Is Failing
The phenomenon of "rising volume but falling profit" at GAC is not an isolated case; it is a snapshot of the cutthroat rivalry gripping China's passenger car industry in 2026. The traditional business logic automakers rely on is failing. In the era of internal combustion engines, expanding capacity and boosting sales was enough to dilute fixed costs and generate steady profits. But amid the dual pressures of energy transition and a brutal price war, that model no longer holds up.
Competition in the mainstream 100,000 to 200,000 yuan family car segment has reached a boiling point, with proprietary brands, joint ventures, and new entrants battling it out while accelerating product cycles. The industry is aggressively fighting for market share through price discounts and heavy marketing spending, which has dragged down profitability across the board. Data shows the profit margin for auto manufacturing from January to May 2026 was just 3.4%—a five-year low. "Revenue growth without profit growth" has become the new normal.
GAC faces more acute transition pressure than players focused on a single segment. As a top-tier automaker covering internal combustion, hybrids, and pure electrics, GAC boasts a massive product matrix and a complete industrial ecosystem. But that comes with correspondingly complex costs for R&D iteration, channel maintenance, marketing, and capacity adaptation.
In a saturated market where growth has peaked and price competition rules the day, a massive corporate scale is no longer a profitability advantage—it is a financial burden that continuously drains cash. The costs of trial and error, and of iteration, required for this transition are far higher than the industry average.
Image Source: GAC
Fundamentally, GAC's widening losses reflect the growing pains typical of legacy automakers shifting gears. The entire industry is currently stuck in a window where the old profit model based on internal combustion is collapsing, while a new model for electric vehicles has yet to take shape. The profit base that once came easily from joint-venture fuel cars is shrinking, while the heavily invested new energy and overseas businesses are still in their incubation stages.
Even though GAC has achieved a significant jump in new energy penetration and rapid export growth—building a clear trajectory for long-term expansion—these growth businesses require heavy upfront investment and offer long return cycles. For now, they contribute volume and market share but cannot generate effective profits to offset the losses in the domestic core business. It is a classic case of "distant water failing to quench a present thirst."
From an industry perspective, GAC's predicament mirrors the common challenge facing all legacy automakers: competition has bid farewell to the rough-and-tumble era of fighting for scale and growth, and officially entered a stage of refined competition based on profitability, efficiency, and technology. Uncertainties—including domestic price wars, raw material volatility, and currency fluctuations—will persist into the second half. GAC's ability to repair its earnings will depend on three core capabilities: improving the profit efficiency of its new energy products, controlling costs across the entire value chain, and upgrading its joint venture system.
