The strong get stronger! The fierce competition among car manufacturers has entered the elimination stage. Who will come out on top in the end?

As we enter 2025, the penetration rate of electric vehicles in China is accelerating, and competition among industry players is becoming increasingly fierce. Who will emerge victorious in the end?

HSBC released a report on January 7, forecasting the development trends of the Chinese electric vehicle market this year. The penetration rate of electric vehicles is accelerating, local brands are gaining market share, and the pace of industry consolidation will rapidly increase. The strong will become stronger, while the weak will struggle to survive. At the same time, autonomous driving and overseas expansion will become new growth poles.

Specifically, HSBC analyst Yuqian Ding stated that by 2024, the sales share of new energy vehicles in China (including electric vehicles and plug-in hybrid vehicles) will reach 50%. This proportion is expected to reach 60% in 2025, 69% in 2026, and nearly 99% by 2030, with local brands gaining corresponding market share.

Furthermore, this rapid transformation has triggered intense competition in the global automotive industry. HSBC expects that the stories of price wars and industry consolidation will continue, with BYD and Tesla further expanding their competitive advantages through price wars, while companies with annual sales of less than 30,000 units are unlikely to survive in the long term.

In addition, the penetration rate of autonomous driving is expected to break the critical point of 10%. As more advanced features are introduced into mass-market models priced below 200,000 RMB by 2025, adoption rates will accelerate. Meanwhile, overseas market expansion presents both opportunities and risks.

The penetration rate of electric vehicles is accelerating, and local brands are gaining market share

HSBC states that the penetration rate of new energy vehicles is rapidly increasing:

By 2024, the sales share of new energy vehicles in China (including electric vehicles and plug-in hybrid vehicles) will reach 50%, compared to only 5% in 2019. This proportion is expected to reach 60% in 2025, 69% in 2026, and nearly 99% by 2030. This rapid transformation has led to intense competition in the global automotive industry, particularly posing significant challenges to traditional fuel vehicle manufacturers. It is expected that new energy vehicle sales will grow by 20% year-on-year in 2025, while internal combustion engine vehicle sales will decline by 24%.

This has resulted in a continuous decline in fuel vehicle sales, with local brands gaining relative market share:

Fuel vehicles are in a downward spiral, with only 11 million sold in the first 11 months of 2024, a significant year-on-year decline of 52%. Traditional automakers are facing the dilemma of capacity reduction, budget cuts, and shrinking dealer networks. For example, the profits of German and Japanese automakers and their joint ventures have significantly declined, and their market share has been continuously eroded by local brands.

Local brands are gaining market share from international competitors. Domestic electric vehicle brands have successfully attracted young, tech-savvy consumers with their smart electric vehicles in development and marketing. The top ten brands in terms of market share growth in the Chinese market in 2024 are all local brands, such as BYD (market share 35%), Geely, Xiaomi, etc.; while brands with declining market shares are mostly Sino-foreign joint ventures focused on internal combustion engines, such as FAW-Volkswagen and GAC Honda.

It is worth mentioning that HSBC states that plug-in hybrid electric vehicles (PHEVs) and extended-range electric vehicles (EREVs) are on the rise:

In the entire electric vehicle market, plug-in hybrid electric vehicles (PHEV) and extended-range electric vehicles (EREV) are experiencing rapid growth. The market share of PHEV and EREV in new energy vehicle sales is expected to increase from 33% in 2023 to 42% in 2024. These models are particularly popular among consumers in lower-tier cities due to their strong adaptability (suitable for both short and long-distance driving) and relatively low prices. Currently, BYD leads the PHEV market, while Li Auto and Aito dominate the EREV market. This trend is expected to continue, with more electric vehicle manufacturers launching a wider range of PHEV and EREV models.

The strong get stronger, the weak struggle to survive, and the pace of industry consolidation accelerates

At the same time, this rapid transformation may trigger the most brutal showdown in the global automotive industry. HSBC predicts that the stories of price wars and industry consolidation will continue, with the strong getting stronger and the weak struggling to survive. Profits and profit margins may temporarily shrink, putting greater pressure on the weakest links.

HSBC stated that market consolidation is accelerating:

As of 2024, there are over 300 domestic electric vehicle models and about 100 electric vehicle manufacturers in China, but market concentration is rapidly increasing. All signs point to a simple fact — the strong get stronger, and the weak struggle to survive. In the first 11 months of 2024, the market share of the top ten new energy vehicle manufacturers increased from 73% in 2022 to 78%. BYD alone has a market share that exceeds the total of the second to seventh places. Meanwhile, 32 brands have annual sales of less than 30,000 units, with low long-term survival prospects.

HSBC expects the industry price war to continue:

BYD and Tesla are further expanding their competitive advantages through price wars, but this has also led to a decline in overall industry profit margins. Even the net profit margin of industry leader BYD is only 5%. It is expected that industry consolidation and price wars will continue, but overall profits and profit margins may further compress in the short term, intensifying pressure on weaker companies.

When BYD and Tesla lower their prices, most competitors have little choice but to follow suit. This clearly squeezes the profit margins of the entire automotive industry, especially as electric vehicles now hold all the power.

Breakthrough in autonomous driving, commercialization accelerates

Autonomous driving has also made progress, with HSBC stating that the penetration rate of autonomous driving has surpassed the 10% threshold and will further increase this year:

In 2024, the penetration rate of new energy vehicles in China with higher-level autonomous driving functions (such as L3 and above) has reached 17% (including Tesla), and 11% if Tesla is excluded. The localized production of Tesla's Full Self-Driving (FSD) feature, along with BYD and XPeng launching cost-effective autonomous driving models, will further drive the increase in penetration rates. **

Basic L2 functions (such as automatic lane changing and automatic parking) have become widespread, but consumer demand and willingness to pay for advanced features (such as autonomous driving on urban roads and door-to-door navigation) have significantly increased. The commercialization of L3 level functions has become key, especially the popularization of urban autonomous driving scenarios (such as fully autonomous driving from parking lot to parking lot, D2D functions).

HSBC further stated that electric vehicle manufacturers are using AI-driven models and large datasets to accelerate commercialization, and the progress of the robotaxi market indicates a broader transformation.

Automakers are adopting AI algorithm architectures based on large models (LLM) instead of traditional rule-driven models. For example, optimizing algorithm performance using video "clips" rather than mileage data. BYD and XPeng are expected to launch mainstream models priced below 200,000 RMB in 2025, which will be equipped with higher-level autonomous driving features. Adoption rates will further accelerate.

Waymo's Robotaxi service in the United States has achieved 175,000 paid rides per week, demonstrating the rapid development of the L4 level Robotaxi market. This progress is positive for smart electric vehicle companies and the autonomous driving supply chain, with XPeng planning to commercialize its Robotaxi business by 2026.

Overseas Market Expansion: Opportunities and Risks

HSBC stated that exports present a growth opportunity, but also face multiple challenges:

In the first 11 months of 2024, China's passenger car export volume increased by 23% year-on-year to 5 million units, of which 1.8 million were new energy vehicles. The growth mainly comes from emerging markets such as Eastern Europe, Southeast Asia, and South America. However, geopolitical risks (such as Russia increasing automobile import taxes) and exchange rate fluctuations put pressure on exporters' profitability.

Establishing production bases in overseas markets (such as BYD's plan to start production in Brazil in 2025) will facilitate expansion, but it requires overcoming challenges related to labor, legal, and environmental issues. Only the financially strongest companies can address these problems.