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

BEIJING — China’s electric vehicle market is set to slow sharply in 2025, analysts predict, increasing pressure on companies struggling to survive.

Sales of new energy vehicles, which include battery-powered and hybrid vehicles, rose 42% last year to nearly 11 million units, according to the China Automobile Association. Market leader BYDNEV sales have soared, growing more than 40% last year to nearly 4.3 million units, well ahead of an internal target of at least 20% growth from 2023.

But looking ahead, HSBC analysts forecast only 20% growth in new energy vehicle sales in China this year, along with increased industry consolidation. They forecast BYD sales to grow by about 14%.

Strong sales allowed “strugglers and laggards” to hang on despite falling margins, Yuqian Ding, head of China auto research at HSBC, said in a report last week. She noted that only BYD, Tesla and Lee Carr made a profit in 2023.

“This situation is unsustainable in our view, and we expect the pace of industry consolidation to accelerate soon,” Dean said.

A combination of Chinese subsidies and consumer purchase incentives has fueled the rapid growth of new energy vehicles in recent years.

Shenzhen-based laser display company Appotronics wasn’t even in the automotive business until it started making car projector screen which started shipping to China early last year. Last year, the company shipped more than 170,000 units.

But in a sign that the market is changing, the company doesn’t expect similar volumes until 2025, Appotronics Chairman and CEO Li Yi told CNBC last week. He predicted that the market would not recover until 2026.

“Many customers, the automakers, are not in a good financial position. They cut the research and development budget. This will definitely have a negative impact on the industry,” Lee said, also noting overcapacity issues.

When automakers piled into China’s fast-growing electric car market, they a price war began 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 longer driving range requirements.

“When BYD and Tesla lower prices, most competitors have no choice but to follow suit. This has clearly reduced overall profits in the auto industry, especially now that electric cars have all the momentum,” HSBC’s Ding said, noting that BYD has a net profit margin of just 5%, which is less than the low level for leading automakers when traditional fossil fuel powered cars were at their peak.

Data from the association showed that by the second half of the year, NEV penetration in new car sales exceeded 50%.

According to Fitch Bohua analyst Wenyu Zhou and his team, the growth rate of NEV new vehicle sales is likely to slow to 15-20% in 2025 due to high penetration. They expect that so-called smart features will increasingly become the main point of competition.

There are more car manufacturers in China turned to in-car entertainment features and driver assistance technology as a way to make your cars stand out.

While the electric car market is slowing its growth, Appotronics plans to bring a 4K resolution projector to cars in China this year, as well as a screen with better contrast and privacy features, Li said.

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