China’s electric car boom is expected to slow in 2025

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

Sales of new energy vehicles, which include battery-only and hybrid vehicles, rose 42% to 11 million last year, according to the China Passenger Car Association. Market leader BYD‘s NEV sales have grown rapidly – up more than 40% last year to nearly 4.3 million units, well above its internal target of at least 20% growth from 2023 onwards.

But looking ahead, HSBC analysts forecast only 20% growth in China’s new energy vehicle sales this year, amid strengthening industry consolidation. BYD predicts unit sales growth of about 14%.

Yuqian Ding, head of China auto research at HSBC, said in a report last week that strong sales volumes allowed “strugglers and stragglers” to hang on despite falling margins. He just mentioned it BYD, Tesla and Lee Car It turned 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 mix of subsidies and consumer purchase incentives has supported the rapid growth of new energy vehicles in recent years.

Shenzhen-based laser display company Appotronics didn’t even have a car business until it started designing. in-car projector screen It started deliveries in China early last year. The company shipped more than 170,000 products last year.

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

“A lot of customers, the car manufacturers, are not in a good financial position. They have cut their R&D budgets. This will definitely have a negative impact on this industry,” he said, pointing to overcapacity issues.

As automakers pile into China’s fast-growing electric car market, they price war started with the aim of attracting customers. Smartphone company Xiaomi launched its SU7 electric sedan last year for $4,000 less than the Tesla Model 3. longer driving range claims.

“When BYD and Tesla cut prices, most competitors have no choice but to follow suit. This has obviously squeezed the overall profit pool in the auto industry, especially now that electric cars are gaining momentum,” HSBC’s Ding said, adding that BYD’s net profit margin only 5%, which is less than the low teens for top automakers when the traditional gas-fueled car was at its peak.

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

According to Fitch Bohua analyst Wenyu Zhou and a team, due to the high penetration rate, the growth rate of new NEV vehicle sales will decrease from 15% to 20% in 2025. They expect smart features to become more and more a focal point of competition.

China’s car manufacturers are increasing turned into in-car entertainment functions and driver assistance technology as ways to differentiate their vehicles.

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

Longer term, the company intends to spend the next two to three years developing new laser-based uses for automotive headlights, Lee said. He added that the company is in talks with Tesla for a projector-type product in a next-generation car, but could not say more because of a non-disclosure agreement.