New electric cars bound for Belgium at a port in Taicang City, east China's Jiangsu Province, on January 11, 2025.
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BEIJING – China's electric vehicle market is headed toward a sharp slowdown in 2025, according to analysts' forecasts, increasing pressure on companies trying to survive.
Sales of new energy vehicles, a category that includes battery-only and hybrid-powered cars, rose last year by 42% to nearly 11 million units, according to the China Passenger Car Association. Market leader BYDSales of new energy vehicles have soared – rising more than 40% last year to nearly 4.3 million units, well above its internal target of at least 20% growth from 2023.
But looking ahead, HSBC analysts expect only a 20% increase in new energy vehicle sales in China this year, alongside further industry consolidation. They expect BYD's unit sales to grow by about 14%.
Strong sales volumes have enabled “distressed and defaulters” to hold on despite lower margins, Yuqian Ding, head of China auto research at HSBC, said in a report last week. She just pointed that out BYD, Tesla and Lee Otto Made a profit in 2023.
“In our view, this situation is unsustainable and we expect the pace of industry consolidation to accelerate rapidly,” Ding said.
China's combination of subsidies and consumer purchasing incentives has supported the rapid growth of new energy vehicles in recent years.
Shenzhen-based laser display company Appotronics had no automotive business until it began making an in-car display that began deliveries in China early last year. The company shipped more than 170,000 units last year.
But in a sign of the changing market, the company expects similar volumes only in 2025, Appotronics Chairman and CEO Li Yi told CNBC last week. He predicted that the market would not recover again until 2026.
“A lot of customers, automakers, are not in a good financial position. They have reduced the R&D budget. This will definitely have a negative impact on the industry,” Li said, also pointing to issues of excess capacity.
As automakers enter China's fast-growing electric vehicle market, a price war has begun in an attempt to attract customers. Smartphone maker Xiaomi launched the SU7 electric sedan last year at a price $4,000 less than the Tesla Model 3, with claims of a longer driving range.
“When BYD and Tesla cut prices, most competitors had no choice but to follow suit,” HSBC’s Ding said. “This clearly reduced overall profits in the auto industry, especially now that electric cars have gained all the momentum,” noting that BYD has a net profit margin of just 5%, lower than the low rate of major automakers when the traditional fossil fuel car was at its peak.
Union data showed that the prevalence of new energy vehicles in new cars sold exceeded 50% by the second half of the year.
Because of the high penetration rate, the growth rate of NEV sales is likely to slow to 15% to 20% in 2025, according to Fitch Bohua analyst Wenyu Zhou and his team. They expect so-called smart features to increasingly become a major point of competition.
Chinese automakers are increasingly turning to in-car entertainment features and driver-assistance technology as a way to make their cars stand out.
While the electric vehicle market is tempering its growth, Apotronics plans to bring a 4K display for cars in China this year, along with a screen with better contrast and privacy features, Li said.
In the long term, the company intends to spend the next two or three years developing new laser-based uses for automobile headlights, Lee said. He added that the company is in talks with Tesla about a display-type product in a next-generation car, but could not say more due to a non-disclosure agreement.
