The electric car market in China is predicted to decline in 2025.

• The electric car market in China is predicted to experience a significant decline in 2025, putting pressure on companies to remain competitive.
• Despite falling margins, "strugglers and stragglers" have managed to stay afloat due to strong sales volumes, according to Yuqian Ding, head of China autos research at HSBC, in a report last week.
• In recent years, the expansion of new energy vehicles in China has been fueled by a combination of government subsidies and consumer purchase incentives.

The electric car market in China is predicted to experience a significant decline in 2025, putting pressure on companies to remain competitive.

Nearly 11 million units of new energy vehicles were sold last year, up 42% from the previous year, according to the China Passenger Car Association. The market leader's NEV sales also increased by more than 40% to nearly 4.3 million units, exceeding its internal target of at least 20% growth from 2023.

HSBC analysts predict that China's new energy vehicle sales will increase by only 20% this year, while the industry consolidation will also occur. They anticipate that BYD's unit sales growth will be approximately 14%.

Despite falling margins, "strugglers and stragglers" have managed to stay afloat due to strong sales volumes, according to Yuqian Ding, head of China autos research at HSBC. She noted that only a few companies, including and , made a profit in 2023.

We believe this situation is unsustainable and anticipate that the pace of industry consolidation will increase rapidly, as Ding stated.

In recent years, the expansion of new energy vehicles in China has been fueled by a combination of government subsidies and consumer purchase incentives.

Appotronics, a Shenzhen-based laser display company, started its automotive business only after it began producing an in-car projector screen that was delivered in China last year. The company shipped over 170,000 units in 2020.

According to Li Yi, the chairman and CEO of Appotronics, the company anticipates similar sales volumes in 2025. However, he believes the market will not recover until 2026.

Overcapacity issues and a lack of funding for research and development are negatively impacting the financial state of automakers, according to Li.

In an effort to attract customers, automakers have engaged in a price war in China's rapidly expanding electric car market. Last year, Xiaomi launched its SU7 electric sedan at a lower price point of $4,000 less than Tesla's Model 3, and made claims about its longer driving range.

The auto industry's profit pool has been squeezed due to BYD and Tesla cutting prices, forcing most rivals to follow suit. HSBC's Ding pointed out that BYD's net profit margin is only 5%, lower than the low teens for top automakers when the traditional fossil fuel car was at its peak.

By the second half of the year, data from the association revealed that the new car market had seen more than 50% penetration of NEVs.

The growth rate of new NEV car sales is predicted to decrease to 15% to 20% in 2025, according to Fitch Bohua analyst Wenyu Zhou and his team. They anticipate that smart features will become a significant factor in competition.

In order to differentiate their vehicles, automakers in China are increasingly focusing on in-car entertainment and driver-assist technology.

Appotronics plans to introduce a 4K-resolution projector with enhanced contrast and privacy features in the Chinese car market, despite the slow growth of the electric car market.

The company plans to invest two to three years in developing new laser-based applications for car headlights, according to Li. He also mentioned that the company is in discussions with Tesla about a projector-type product for a future vehicle, but he cannot disclose any further details due to a non-disclosure agreement.