China’s electric car boom expected to slow in 2025

BEIJING – China’s electric car market is headed for a sharp slowdown in 2025, analysts predict, adding pressure on companies trying to survive.

Sales of new energy vehicles, a category that includes hybrid and battery cars, rose 42% last year to nearly 11 million units, according to the China Passenger Vehicle Association. Market leader BYDNEV sales soared: more than 40% last year to almost 4.3 million units, well above its internal target of at least 20% growth from 2023.

But looking ahead, HSBC analysts forecast only a 20% increase in new energy vehicle sales in China this year, along with further industry consolidation. They predict BYD unit sales growth of around 14%.

Strong sales volumes have allowed “strugglers and laggards” to survive despite falling margins, Yuqian Ding, head of China auto research at HSBC, said in a report last week. She pointed out that only BYD, tesla and li car 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 purchasing incentives has supported the rapid growth of new energy vehicles in recent years.

Appotronics, a Shenzhen-based laser display company, didn’t even have an automobile business until it started making a projector screen in car which began deliveries in China early last year. The company shipped more than 170,000 units last year.

But in a sign of a changing market, the company only expects similar volumes in 2025, Appotronics president and CEO Li Yi told CNBC last week. He predicted that the market would not recover again until 2026.

“Many customers, automakers, are not in a good financial situation. They cut the R&D budget. That will definitely have a negative impact on this industry,” Li said, also pointing to overcapacity issues.

As automakers entered China’s fast-growing electric car market, a price war started in an attempt to attract customers. Smartphone company Xiaomi launched its SU7 electric sedan last year for $4,000 less than the Tesla Model 3, and with Claims for longer autonomy..

“When BYD and Tesla cut prices, most rivals have no choice but to do the same. This has clearly reduced the profit pool in the auto industry, especially now that electric vehicles have all the momentum,” Ding said of HSBC, noting that BYD has a net profit margin of just 5%, less than the 10% minimum of major automakers when the traditional fossil fuel automobile was at its peak.

NEV penetration in new cars sold exceeded 50% in the second half of the year, association data showed.

Due to the high penetration rate, the sales growth rate of new NEV cars will likely slow by 15% to 20% in 2025, according to Fitch Bohua analyst Wenyu Zhou and his team. They expect so-called smart functions to increasingly become an important point of competition.

Car manufacturers in China have increasingly turned to in-car entertainment features and driver assistance technology as ways to make your vehicles stand out.

As the electric car market moderates its growth, Appotronics plans to bring a 4K resolution projector to cars in China this year, along with a display that has better contrast and privacy features, Li said.

As for the long term, the company intends to spend the next two to three years developing new laser-based uses for automotive headlights, Li said. He added that the company is in talks with Tesla for a projector-type product in a next-generation vehicle, but could not say more due to a confidentiality agreement.