Rising metal and memory prices weigh on China's EV industry, analysts say

• If all cost increases are borne by automakers, they could completely erode profit margins, UBS said.
• UBS estimates that the cost of a typical mid-sized smart EV could increase by RMB 4,000 ($575) to RMB 7,000.

China's electric vehicle (EV) sector is facing increasingly visible challenges, with manufacturers grappling with rising metal and memory costs alongside consumers bearing additional purchase tax burdens.

Early 2026 marks a convergence of stimulus withdrawal, purchase tax levies, and commodity cost inflation — a moment when the industry will struggle to absorb these shocks, UBS analyst Paul Gong's team said in a Monday research note.

The team estimates that the cost of a typical mid-sized smart EV will increase by RMB 4,000 ($575) to RMB 7,000, though it remains uncertain whether these costs will be passed on to consumers.

UBS assumes a mid-size EV requires 200 kilograms of aluminum and 80 kilograms of copper. Cost increases over the past three months indicate aluminum costs rose by RMB 600, copper by RMB 1,200, and lithium by RMB 1,000 to RMB 3,800.

Memory chips represent another cost driver. UBS learned from industry insiders that DRAM costs for a modern vehicle range from $25 to $150, with a reasonably intelligent vehicle typically costing around $100 in DRAM.

Assuming DRAM costs were $100 or RMB 700 before recent price hikes, spot prices have surged 180% over the past three months.

This translates to an increase in DRAM costs per vehicle from RMB 700 to RMB 2,000, representing an additional RMB 1,300 cost based on spot price fluctuations, UBS noted.

Historically, when all players face the same challenges, the pass-through rate for commodity cost increases tends to be high, the team noted.

However, given current factors like weak EV demand following stimulus policy withdrawal and the imposition of a 5% purchase tax starting January 2026, it remains unclear whether suppliers, automakers, and consumers can share the impact of such cost increases — and to what extent, UBS said.

Given intense competition and already thin profit margins, UBS estimates that should automakers absorb the full cost increase, this cost inflation alone could completely erode their profit margins.

The team believes that over time, suppliers may respond to price signals by expanding capacity; alternatively, demand could weaken further, thereby curbing commodity price hikes.

"But for the near term, we believe this is another reason to be cautious on the sector," UBS said.

The rapid rise of artificial intelligence (AI) has fueled surging demand for data centers, emerging as a key driver of the global memory shortage.

Additionally, over recent months, prices for lithium carbonate — a critical raw material for lithium batteries — have surged significantly, now impacting EV costs.

Over the past two months, spot prices for battery-grade lithium carbonate in China have surged by about 80%, according to data compiled by CnEVPost.

Rising raw material costs and memory chip prices represent significant potential cost pressures this year, a challenge facing the entire industry, said William Li, founder, chairman, and CEO of Nio, during a January 6 media briefing with outlets including CnEVPost.

Regarding memory chips, EV manufacturers must compete for resources with AI players and computing centers, he noted.

Nio flags potential cost pressures from memory chips

"Potential cost pressures this year are quite significant. The biggest cost pressure isn't raw materials, but memory chips," said William Li.

Nio

Jan 6, 2026

($1 = RMB 6.9575)