A new electric vehicle bound for Belgium is at a port in Taicang city, eastern China’s Jiangsu province, on January 11, 2025.
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BEIJING – China’s electric vehicle market is headed for a sharp slowdown in 2025, analysts predict, increasing pressure on companies trying to survive.
Sales of new energy vehicles, including battery-only and hybrid vehicles, rose 42% to nearly 11 million units last year, according to the China Passenger Vehicle Association. Market leader BYD’s NEV sales have soared, increasing by more than 40% to nearly 4.3 million units last year, far exceeding its internal goal of growing at least 20% from 2023.
Looking ahead, however, analysts at HSBC expect new energy vehicle sales in China to rise by just 20% this year as the industry continues to consolidate. They predict that BYD’s sales will increase by about 14%.
Ding Yuqian, head of China auto research at HSBC, said in a report last week that strong sales had helped “struggling companies and laggards” hold on despite falling profit margins. He pointed out that only BYD, Tesla and Li Auto made profits 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 purchase incentives has supported the rapid growth of new energy vehicles in recent years.
Shenzhen-based laser display company Apotronics didn’t even have an automotive business until it started making car projector screens, which it began delivering in China early last year. The company shipped more than 170,000 units last year.
But in a sign of market change, the company only expects similar volumes in 2025, Apotronics Chairman and CEO Li Yi told CNBC last week. He predicted that the market would not recover until 2026.
“Many customers and automakers are not in a good financial position. Research and development budgets have been cut. That will definitely have a negative impact on this industry,” Lee said, also addressing the issue of excess production capacity. Mentioned.
Automakers have entered China’s fast-growing electric vehicle market one after another and started competing on price to attract customers. Last year, smartphone company Xiaomi launched the SU7, an electric sedan that claims to be $4,000 cheaper than Tesla’s Model 3 and has a longer range.
“When BYD and Tesla lower their prices, most rivals have little choice but to follow suit. This is clearly squeezing the profit pool of the entire auto industry, especially now that EVs are gaining momentum. Yes,” said HSBC’s Ding, noting that BYD’s profits are low. Net profit margins are just 5%, lower than the low 10% for top automakers during the heyday of traditional fossil fuel vehicles.
According to the association’s data, the NEV penetration rate of new cars sold exceeded 50% by the second half of this year.
Due to their high penetration rate, the growth rate of new NEV vehicle sales is likely to slow to 15-20% in 2025, according to Fitch Bohua analyst Wenyu Zhou and his team. They predict that so-called smart features will increasingly become a key competitive point.
Chinese automakers are increasingly turning to in-car entertainment features and driver-assistance technology as ways to make their vehicles stand out.
As the electric vehicle market slows in growth, Apotronics plans to introduce 4K resolution projectors to Chinese cars this year, along with screens with improved contrast and privacy features, Li said.
Longer term, Lee said the company plans to spend the next two to three years developing new laser-based applications for car headlights. He added that the company is in talks with Tesla about a projector-type product that will be installed in next-generation cars, but could not say more due to a non-disclosure agreement.
