Industrial and mobility (3 of 5)

Automotive and electric vehicles

About 9 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Carmakers design and assemble cars, scooters and trucks from thousands of parts bought from suppliers, and sell them through dealers who also service and finance them.

The big idea: A carmaker spends billions on plants and new models before it sells a single car, then earns only a thin slice of each car's price. So profit depends on selling enough cars on each shared platform to cover those fixed costs, on the mix of models, and now on the cost of the battery. A small fall in volume can wipe out most of the profit.

One unit, in numbers: One compact electric car: USD 36,000 comes in, and USD 1,700 (4.7%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: 2 to 8 percent for most carmakers; lower for suppliers under price pressureRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: HighA lot of money must be tied up before the business earns anything, so the return on that money matters as much as the margin. More on capital intensity
The number to watch: Units sold and market shareCars delivered, by model and region, and the share of the market they represent. Volume decides how well fixed costs are covered.

Ask this first in a case

Cars, or two- and three-wheelers, and in which region? The answer often changes between them.

Words used above (2)

Platform:: Shared engineering and parts that several models are built on, spreading development cost.
Mix:: The share of expensive models and options in what is sold.

The industry's other words are explained in Words to know (11).

On this page (17 sections)

How money is made

Carmakers sell cars to dealers (or straight to buyers) and earn the gap between the price and the cost of parts, labour and logistics, which must then cover plants and development.
Richer models, options and trims earn far more per car than basic versions, so the mix of models matters as much as the number sold.
Carmakers' finance arms earn interest on car loans and leases, and parts sales earn steady margins for years.
Suppliers earn per part under multi-year contracts for each model, and give price cuts each year.
Dealers earn a small margin on new cars and most of their profit from service, parts, used cars and finance commissions.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One compact electric car, carmaker's revenue after sales tax and the dealer margin of USD 36,000. Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Carmaker's revenue per car	USD 36,000	100%
Minus Battery pack: 60 kWh at about USD 100 per kWh	USD 6,000	17%
Minus Electric motor, power electronics and cooling	USD 2,500	6.9%
Minus Body, interior, chassis, electronics and other parts	USD 17,000	47%
Minus Assembly labour	USD 2,000	5.6%
Minus Outbound logistics	USD 800	2.2%
Minus Warranty (about 3 percent of revenue)	USD 1,000	2.8%
Minus Plants, development and overheads spread over each car at planned volume	USD 5,000	14%
What is left (contribution)	USD 1,700	4.7%

Check: USD 36,000 minus USD 34,300 of costs leaves USD 1,700.

So what: The carmaker keeps about USD 1,700 a car, under 5 percent. Every USD 10 fall in battery cost per kWh adds USD 600, and if volume falls a fifth, the fixed USD 5,000 per car rises to about USD 6,250 and most of the profit goes, so the levers are battery cost, platform scale and keeping the plants full.

Key measures(9)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Units sold and market share
Cars delivered, by model and region, and the share of the market they represent. Volume decides how well fixed costs are covered.
Average selling price and mix
The average price actually paid, which rises when buyers choose bigger models, better trims and more options.
Typical: About USD 50,100 for a new vehicle in the United States in August 2026, and about USD 54,800 for an electric one[3]
Battery cost per kWh
What the battery pack costs for each kWh it stores; the key cost of an electric car.
Typical: About USD 108 per kWh on average across all uses in 2025, and about USD 99 for packs in battery electric cars, cheaper in China than in Europe and North America[2]
Warranty cost
Money set aside to repair faults under warranty, as a share of sales: a sign of quality.
Typical: About 3 to 4 percent of product sales at large US carmakers in late 2025 (about 3.0 percent at GM, 3.2 at Tesla, 4.0 at Ford)[4]
Plant utilization
Cars built divided by plant capacity. Many plants need to run above roughly 70 to 80 percent to make money.
Profit per vehicle and operating margin
Operating profit divided by cars sold, and by revenue.
Typical: About 2 percent average operating margin for US-listed carmakers in January 2026 data[1]
Days of inventory
How many days of sales are sitting at dealers and in ports. Too much stock leads to discounts.
Fleet average emissions
The average carbon dioxide per km of all cars a maker sells, which regulators in the EU, India and elsewhere cap.
Electric share of sales
The share of new cars sold that are electric (battery or plug-in hybrid).
Typical: About 25 percent worldwide in 2025; almost 55 percent in China and about 28 percent in Europe[5]

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Cars, or two- and three-wheelers, and in which region? The answer often changes between them.
What happened to volume against plant capacity, and to price and model mix?
What are our fixed costs, and how many units do we need to break even?
For electric models: what is our battery cost per kWh against rivals?
Which rules and incentives apply: emissions targets, subsidies, tariffs, local content?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Raw materials and battery minerals: steel, aluminium, plastics, lithium, nickel, graphite
Margin varies
Steel mills, miners and refiners, much of the battery material refining in China
Swings with commodity prices; see the Mining and Chemicals briefs.
Step 2: Battery cells and packs
Margin varies
CATL, BYD, LG Energy Solution, Panasonic, Samsung SDI, SK On
The most expensive part of an electric car; scale and chemistry (cheaper LFP or denser NMC) decide cost.
Step 3: Suppliers in tiers: tier 2 and 3 make parts and chips, tier 1 sells whole systems to the carmaker
Thin margin
Bosch, Denso, ZF, Continental, Hyundai Mobis, Magna
US auto parts makers averaged about 6 percent operating margin in January 2026 data; carmakers push for price cuts every year.
Step 4: Carmaker (OEM): design, engineering, body shop, paint, final assembly and brand
Thin margin
Toyota, Volkswagen Group, Hyundai, BYD, Maruti Suzuki, Tata Motors, Tesla
US carmakers averaged about 2 percent operating margin in January 2026 data; premium brands and a few leaders earn much more.
Step 5: Logistics: car carrier ships, trains and trucks to each market
Thin margin
Car carrier shipping lines, rail and truck companies
Step 6: Dealers and distributors: sell new and used cars, arrange finance and insurance
Thin margin
Dealer groups; in the Gulf, family groups such as Abdul Latif Jameel and Al-Futtaim
New car sales earn little; used cars, finance commissions, service and parts earn most of a dealer's profit.
Step 7: Aftermarket and financing: spare parts, repair, insurance, loans and leases
Fat margin
Dealers' workshops, independent garages, carmakers' own finance arms, banks
Steady income from the cars already on the road, long after the sale.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

Carmakers and suppliers earn thin margins on building cars because fixed costs are high and competition is fierce. More of the steady profit sits after the sale: in financing, spare parts, repair and used cars. In electric cars, the battery makers with the most scale and the carmakers with the cheapest batteries, many of them in China, have pulled ahead.

Cost structure(6)

The main costs, each as a share of revenue (the money from sales).

Cost of goods sold (parts, materials, labour, plant costs), US carmakers: About 90 percent of revenue[1]
Purchased parts and materials within that: The largest single cost; about 70 percent of the carmaker's revenue in the worked example, battery included
Battery pack in an electric car: About a sixth of the carmaker's revenue in the worked example (60 kWh at about USD 100 per kWh)[2]
Warranty accruals, large US carmakers, 2025: About 3 to 4 percent[4]
Incentives and discounts to move cars, US, August 2026: About 6.5 percent of the transaction price[3]
Operating profit, US carmakers: About 2 percent[1]

Benchmarks(6)

Typical figures for the industry, to check a client's numbers against.

Operating margin, US carmakers: About 2 percent[1]January 2026 data.
Gross margin, US carmakers: About 10 percent[1]
Operating margin, US auto parts makers: About 6 percent[1]
Average new vehicle price, United States, August 2026: About USD 50,100[3]
Battery pack price, all uses, 2025: About USD 108 per kWh[2]
Warranty accrual rate, large US carmakers, 2025: About 3 to 4 percent of sales[4]

Typical cases(7)

Case prompts you might hear in this industry.

A European carmaker's profit halved this year. Why?
Should we build an electric vehicle plant in India, and for which segment?
A cheaper rival electric car entered our market. How should we respond?
A dealer group in Saudi Arabia wants more profit.
An electric scooter startup loses money on every scooter. Fix the unit economics.
US tariffs hit our imported models. Should we build locally?
How should a tier 1 supplier of engine parts prepare for electric cars?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Working from the showroom price without removing sales tax and the dealer margin.
Ignoring fixed costs, so a small volume drop looks harmless when it can remove most of the profit.
Assuming electric car adoption is the same everywhere: it differs hugely between China, Europe, the US, India and the Gulf.
Treating subsidies and tariffs as permanent; they change often.
Forgetting cannibalization: a new electric model can take sales from the company's own petrol models.

What changed, 2024 to 2026(8)

Recent changes a case could turn on.

Electric cars went mainstream: more than 20 million were sold in 2025, about a quarter of all new cars, with almost 55 percent in China and about 28 percent in Europe; the IEA expected about 23 million in 2026.[5]
Chinese makers took the lead: BYD sold about 2.26 million battery electric cars in 2025, more than Tesla's roughly 1.64 million deliveries.[7]
Europe pushed back: the EU has charged extra duties of up to 35.3 percent on battery electric cars made in China since October 2024.[8]
Tariffs reshaped where cars are built: the United States put a 25 percent tariff on imported cars from April 2025, and later deals set 15 percent for cars from Japan and the EU, pushing makers to build more locally.[9]
The EU gave carmakers more time: compliance with the CO2 targets for 2025, 2026 and 2027 is judged on the three-year average instead of each year, easing fines while the targets stay.[11]
India electrified on two and three wheels: about 1.4 million electric two-wheelers were sold in the year to March 2026, about 57 percent of all electric vehicles sold in India, supported by the PM E-DRIVE subsidy scheme.[12]
India kept its EV subsidy going: the PM E-DRIVE scheme, first due to end in March 2026, now runs to 31 March 2028, and in August 2026 the subsidy for electric two-wheelers was extended to that date at INR 2,500 per kWh of battery, up to INR 5,000 a vehicle.[14]
The 2026 energy shock raised fuel prices, which widens the running cost gap in favour of electric vehicles; some countries, including Viet Nam, announced plans to extend EV tax incentives.[5]

Players by region(7)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: Toyota
Volkswagen Group
Hyundai and Kia
BYD
Stellantis
Bosch and Denso (suppliers)
CATL (batteries)
Europe: Volkswagen Group
Stellantis
Renault
BMW
Mercedes-Benz
Bosch, ZF, Continental, Valeo (suppliers)
United States: General Motors
Ford
Tesla
Rivian
Magna (Canadian supplier)
China: BYD
Geely
SAIC
Chery
Changan
CATL
India: Maruti Suzuki
Tata Motors
Mahindra and Mahindra
Hyundai Motor India
Hero MotoCorp, Bajaj Auto and TVS Motor (two- and three-wheelers)
Ola Electric and Ather Energy (electric scooters)
Middle East: Ceer (Saudi electric car brand)
Lucid assembly in Saudi Arabia
Abdul Latif Jameel (Saudi distributor)
Al-Futtaim (UAE distributor)
Southeast Asia: VinFast (Vietnam)
Proton and Perodua (Malaysia)
Astra International (Indonesia)
Thailand assembly plants of Japanese and Chinese makers

Words to know(11)

Linked words have a fuller entry in the glossary.

OEM (glossary entry): Original equipment manufacturer: in cars, the carmaker itself.
Tier 1 supplier (glossary entry): A company that sells whole systems, such as brakes or seats, straight to the carmaker.
Platform: Shared engineering and parts that several models are built on, spreading development cost.
Battery pack cost per kWh: What the battery costs for each kWh of energy it stores.
LFP and NMC: Two battery chemistries: LFP is cheaper and safer; NMC stores more energy per kg.
BEV and PHEV: Battery electric vehicle (battery only) and plug-in hybrid (battery plus engine).
Mix: The share of expensive models and options in what is sold.
Warranty accrual: Money set aside at sale to pay for future repairs under warranty.
Days of inventory: How many days of sales are sitting unsold at dealers and ports.
Fleet average emissions: Average CO2 per km of all cars a maker sells, capped by regulators.
Cannibalization (glossary entry): When a new product takes sales from the company's own existing products.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(14)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.