Automotive Industry 2025: Find the Right Position and Start Elimination

In recent years, many leading figures in auto companies have asserted that 2025 will become a key watershed in the development of the automotive industry. This means that 2025 is destined to be a brutal elimination match.

In fact, since entering 2025, various auto companies and parts manufacturers are still facing tremendous pressure. "Facing a limited incremental market, the cost reduction capabilities, R&D efficiency and effectiveness, brand strength and other factors of enterprises in the industry will eventually be reflected in their profits and cash flow, and the industry structure will accelerate the "reshuffle." Fitch Bohua told reporters from China Business News.

However, while the automotive industry is undergoing unprecedented profound changes, it is also welcoming major opportunities. For example, the penetration rate of new energy vehicles has increased significantly, the structure of car buyers has reached an inflection point, emerging market demand has emerged, and consumers' value propositions have undergone profound changes. The technology field is blooming in many places, AI and battery technology have made major breakthroughs, and smart transportation scenarios have continued to expand.

"Many technological innovations will achieve accelerated breakthroughs in 2025. Automakers and auto parts companies should actively build a forward-looking technology ecosystem and accelerate the implementation of technology applications." Zheng Yun, global senior partner and head of automotive business in Asia at Roland Berger, told reporters.

Subsidy policy continues, predicting overall market growth in 2025

On January 13, data released by the China Association of Automobile Manufacturers showed that in 2024, automobile production and sales will reach 31.282 million and 31.436 million respectively, up 3.7% and 4.5% year-on-year, respectively, completing the expected annual target.

Many interviewees believe that the core driving force for China's auto sales growth in 2024 comes from policy stimulus. It is understood that in April 2024, the Ministry of Commerce and others launched a policy of subsidies for old-for-new cars, and in August, the subsidy standard for the new round of policies doubled, driving rapid sales growth. On January 8, 2025, the National Development and Reform Commission and the Ministry of Finance issued the 2025 "old-for-new" policy to expand the scope of support for scrapped cars.

The Autohome Research Institute believes that this will better support automobile consumption in 2025, and predicts that the growth rate of passenger cars in 2025 will reach 3.0%.

In particular, the attention to the new energy market has continued to rise in recent years. According to Autohome user attention data, the attention of new energy users reached 60% in June 2024. According to estimates, the sales penetration rate of new energy vehicles will usher in a significant increase in 2025, especially in the second half of the year, when this penetration rate is expected to exceed 60%.

Fitch Bohua's forecast is similar to that of the Autohome Research Institute. Fitch Bohua believes that China's overall automobile sales in 2025 will still maintain a growth rate of 3.0%-4.0%, and the growth rate of passenger cars will be higher than that of commercial vehicles, but the sales growth rates of different brands and models will further diverge.

"In 2025, the penetration rate of new energy vehicles will continue to increase, and intelligence will become the main field of competition. However, since the current penetration rate of new energy vehicles has exceeded 40%, the growth rate of new car sales will slow down further under the influence of the high base number. It is expected that the sales growth rate of new energy vehicles in 2025 will be between 15% and 20%." Fitch Bohua told reporters.

Zhang Yongwei, vice chairman and secretary general of the China Electric Vehicle 100, pointed out that in the stage of rapid growth of new energy, traditional internal combustion engines are not completely eliminated. When both pure electricity and fuel present market development bottlenecks, the integration of power technology will become the main force in the increase of new energy in 2025.

According to the estimation of the China Electric Vehicle 100, the sales volume of plug-in hybrid and extended-range power models will exceed 8 million in 2025, with a growth rate of 60%, accounting for nearly 50% of the overall sales volume of new energy vehicles.

It is worth mentioning that Fitch Bohua also expects that the growth rate of China's automobile export sales in 2025 will still maintain double-digit growth, but with the increasing international trade frictions, the growth rate will slow down.

Technology blossoms in multiple places to accelerate integration and innovation

With the continuous advancement of technology and the growing demand of consumers, automotive intelligence has become an important trend in the development of the automotive industry. In 2024, there will be significant growth and innovation in the intelligence of both the whole vehicle and the parts field. Technologies such as end-to-end large models, lightweight sensor solutions, big data and algorithm improvements, the launch of affordable smart driving models, the NOA (Navigation on Autopilot) function in cities without high-precision maps, and the application of Huawei's ADS system have not only improved the response speed and decision-making accuracy of the intelligent driving system, but also reduced hardware costs and optimized perception, decision-making and control capabilities.

At the same time, the country and various provinces and cities have introduced policies for the field of intelligent driving in 2024, aiming to promote the development and application of technology. The policies are mainly focused on promoting high-level intelligent driving applications, the construction of vehicle-road-cloud integration projects, and the access and road access pilot work of intelligent connected vehicles. The introduction of policies shows that the country attaches great importance to the development of the field of intelligent driving, aiming to accelerate the maturity and application of technology through policy guidance and support, and then promote the development of the entire intelligent connected vehicle industry.

Fitch Bohua believes that with the continuous development of technology and the expansion of market demand, there is still room for growth in the core intelligent parts market. At the same time, with the expansion of export markets, the international competitiveness of Chinese parts manufacturers will be further enhanced. However, the automotive parts industry is facing fierce competition from cross-border manufacturers, such as technology companies, chip manufacturers, and independent research and development by OEMs. For those parts manufacturers who fail to apply their products to the mainstream market or fail to update their technology in time to adapt to market changes, they may quickly lose market share or even be eliminated by the market.

Roland Berger believes that there will be three major technological trends in 2025.

The first is the acceleration of core technology on the car. AI will accelerate end-to-end application in the whole vehicle and industrial chain, further enable high-level autonomous driving, and realize the full application of Transformer+BEV to end-to-end AI application of perception-planning-decision-making; AI application scenarios on the R&D side will continue to expand and significantly improve R&D efficiency; large models will also affect the multimodal fusion application of smart cockpits. In the field of electrochemistry, the next generation of battery technology continues to develop, and core technologies such as high nickel, high silicon, and solid-state batteries continue to mature.

The second is the exploration of smart transportation scenarios. In the field of smart cities and smart travel, eVTOL technology has shown diversified development, with a wide range of market scenarios, including short-distance passenger transport, cargo transportation and tourism. Among them, flying cars, as an important part of the low-altitude economy, will accelerate the commercialization process in 2025.

The third is the cross-border integration of scientific and technological innovation. The automobile travel ecosystem continues to expand and further integrates with industries such as artificial intelligence, transportation and logistics, consumer electronics, and health care. In 2025, with the acceleration of industrial integration, the boundaries will become more blurred. For industry participants, the "opportunities" of territory expansion and the "risks" of strategic transformation coexist. Enterprises need to have strategic determination, find the right role positioning, optimize the business model, and prepare for the next five years of technology layout.

Car buyers usher in a turning point and car companies reshape the value system

Against the background of the rapid development of new energy vehicles and intelligence, in order to better respond to the rapid changes in market terminals, car companies' marketing and pricing strategies are constantly adjusted. The root cause is that the diversified needs, changing behaviors, diverse brand expectations and more differentiated value propositions of the new generation of consumers in the Chinese market are the key to changes in the terminal market.

At present, the market is dominated by users who purchase new cars and the structure of the car-buying population is facing two "turning points".

The Autohome Research Institute believes that, affected by the replacement subsidy policy, the replacement population has grown beyond expectations, which has significantly affected the structural changes of the car-buying population. On the one hand, the proportion of women has fallen, but they are still key decision makers in the car selection stage. 60% of men will refer to their spouse's opinions when choosing a car, and more attention should be paid to the needs and preferences of female decision makers; on the other hand, the proportion of young users under 30 years old has decreased, mainly because male users are aging and young male users are decreasing. However, the so-called "younger" trend in the market refers to the generational change of car-buying users, not age. 30-40 years old is still the absolute main force of car purchases. What needs to be considered is how to serve the "new generation" of users.

At the same time, with the continuous evolution and development of the market, there are still some trend changes in the automobile market in 2025. The demand for cars in low-tier markets and families with children has become the focus. There are more and more users in low-tier markets. In 2024, the proportion of users in third-tier and below tiers will be nearly half. This market has broad development space in the future and is worth further exploration. At the same time, families with children are still the absolute main force in the automobile market, accounting for more than 96%, especially in low- and medium-tier cities, where the characteristics of multi-child families are particularly obvious. Therefore, it is necessary to attach great importance to the car needs of large families to meet the actual demands of this huge user group.

"The continuous decline in the profit margin of the overall automobile industry has caused car companies to reconstruct their value system. Whether they can meet the changes in the value proposition of new Chinese consumers is the key to regaining value in 2025." Zheng Yun said, "In the process of reconstructing the value system, car companies need to shape irreplaceability with consumer value proposition as the core and seek full-link value mining."

Therefore, for car companies, localized product definition, differentiated brand marketing, vertical integration of core components and technological innovation are key to reshaping value.

"Enterprises should focus on satisfying the value proposition of new consumers and create differentiation and irreplaceability." Zheng Yun said, "Through multi-dimensional construction of a three-dimensional brand image, accurately resonate with users, create a unique and irreplaceable car experience for users, and thus achieve premium space. Explore the design of new value models, and carry out around battery services (battery leasing, cascade utilization and recycling), second-hand car circulation (manufacturer repurchase, trade-in), financial solutions (renting instead of buying), and aftermarket scenarios."

It is worth noting that cost reduction and efficiency improvement have become the common theme of automotive industry companies. Roland Berger believes that in order to better cope with the cost pressure of the entire value chain, automakers, dealers and aftermarket companies should not only focus on a single link, but should focus on upgrading all channels to seek opportunities for value chain profit improvement.

For automakers and dealers, improving customer experience, optimizing sales processes, strengthening data analysis and precision marketing will become the key. Aftermarket companies also need to establish a more flexible channel system to improve customer stickiness and repurchase rate by providing personalized services and extending product life cycle management. In addition, parts companies must adopt a more flexible Go-To-Market (GTM) model and strengthen the profit transparency management of the parts distribution chain to ensure clear profit distribution at all levels of channels, thereby optimizing the overall profit structure.