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

BEIJING – China’s electric car market is headed for 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 cars and hybrids, increased last year by 42% to nearly 11 million units, according to the China Passenger Car Association. Market leader BYDNEV sales are soaring – up more than 40% last year to nearly 4.3 million units, well above its internal target of at least 20% growth by 2023.

But in the future, HSBC analysts predict only a 20% increase in China’s energy vehicle sales this year, in addition to a consolidation of the industry. They forecast BYD unit sales growth of around 14%.

Strong sales volumes allowed “strugglers and stragglers” to hang on despite falling margins, Yuqian Ding, head of China auto research at HSBC, said in a report last week. She just said that BYD, Tesla and Car 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.

The combination of China’s subsidies and incentives for consumer purchases have supported the rapid growth of new energy vehicles in recent years.

Shenzhen-based laser display company Appotronics didn’t even have an auto business until it started making a projector screen in car which began shipping to 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 will not recover until 2026.

“A lot of customers, the automakers, they are not in a good financial state. They cut the R & D budget. That will certainly have a negative impact on this industry,” said Li, also noting the problems of overcapacity.

As automakers pile into China’s fast-growing electric car market, they a price war begins in an attempt to attract customers. Smartphone company Xiaomi launched its SU7 electric sedan last year at $4,000 less than Tesla’s Model 3, and with claims of a longer driving range.

“When BYD and Tesla cut prices, most rivals have little choice but to follow. This has clearly tightened the overall profit pool in the auto industry, especially now that EVs have all the moment,” HSBC’s Ding said, noting that BYD has a net profit margin of just 5%, less than the low-teens for major automakers when the traditional fossil fuel car was at its peak. peak

NEV penetration of new cars sold had exceeded 50% by the second half of the year, the association’s data showed.

Due to the high penetration rate, the growth rate of new NEV car sales will likely slow to 15% to 20% in 2025, according to Fitch analyst Bohua Wenyu Zhou and a team. They expect that smart features will increasingly become a major point of competition.

China’s car manufacturers have more and more back to car entertainment functions and driver assistance technology as ways to make their vehicles stand out.

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

As for the longer term, the company intends to spend the next two to three years developing new laser-based uses for car 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 because of a non-disclosure agreement.