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2024 Review: Accelerating Electrification

The Chinese passenger car market delivered a resilient performance in 2024, with domestic-made vehicle deliveries growing +8.5% y/y (up from +7.6% y/y in 2023). This growth was largely fueled by a strong 4Q, as the central government doubled subsidies for vehicle trade-ins and provincial authorities rolled out complementary programs.

New Energy Vehicles (NEVs) emerged as the undisputed growth engine, growing +47% y/y compared to +40% y/y in 2023, despite an already high base. Government policies played a pivotal role: NEV buyers received RMB 20,000 in central subsidies, significantly higher than the RMB 15,000 offered for internal combustion engine (ICE) vehicles. This incentive gap helped push NEV penetration to 47% nationwide, up from 35% in 2023.

Meanwhile, ICE vehicles faced further decline, with sales -12% y/y – a stark deterioration from the -4% y/y in 2023. This widening gap underscores China’s rapid transition toward electrification.

Technology Wars: PHEVs Steal the Spotlight

The NEV market revealed striking divergences across powertrain types. Plug-in Hybrid Electric Vehicles (PHEVs) stole the show with +90% y/y, building on 2023’s already impressive +69% y/y. BYD’s aggressive rollout of its affordable “Glory Edition” models and upgraded models featuring fifth-generation DM technology proved instrumental in this surge. Extended-Range EVs (EREVs) maintained robust momentum at +83% y/y, though this marked a normalization from 2023’s explosive +161% y/y.

Battery Electric Vehicles (BEVs), while still growing at a respectable +27% y/y, lagged behind the PHEVs and EREVs. This divergence reflects shifting consumer preferences: Many buyers now favor PHEVs and EREVs for their elimination of range anxiety and lower upfront costs (achieved through smaller battery packs). Consequently, PHEVs nearly doubled their market share to 15%, while ICE vehicles’ dominance continued to erode, falling to 49% from 61% in 2023.

Brand Battleground: Domestic Innovators vs. Struggling Foreign Brands

BYD maintained its leading position in China car market and further gained market share to 15.4% in 2024 from 11.5% in 2023, thanks to its strong growth despite last year's high base. Several domestic brands like Wuling, Chery, and Li Auto also gained share, while Changan and Haval lost.

Both BYD and Li Auto benefitted from their newly launched affordable models. Wuling was supported by its minicar models. Chery saw strong performances across NEV and ICE through continuous new model introductions and cost-effective product offerings.

In contrast, almost all international brands (except Tesla) further lost market share with negative growth rates: Volkswagen, Toyota, Honda, BWM, Audi, Nissan, and Mercedes Benz.

Regarding the NEV sector, the competition intensified in 2024 amid the ongoing price war as we expected. Major domestic manufacturers, led by BYD, Li Auto, Xpeng, and Nio, continued to launch cost-effective and competitive new models. On the other hand, international brands, including Tesla and BMW, offered more aggressive promotions on existing models to defend their market.

Market share gainers can be categorized into two types. The first type comprises brands that introduced more affordable models with prices below RMB 180K, such as Leapmotor's C10 and C16, Galaxy's E5, and Changan Qiyuan's Q05 and A07. The second type includes brands that introduced more competitive products in terms of vehicle configuration and performance, such as Aito's M7 and M9, Zeekr's updated 001 and 7X, and Xiaomi's SU7.

Major market share losers were Tesla, Aion, BMW, and Neta.

● Tesla's market share decreased to 6.1% in 2024 from 8.3% in 2023. Despite maintaining positive growth in China through direct price reductions and a 5-year 0-interest financing offer, its annual growth rate of +9% y/y significantly lagged behind the NEV sector's +47% y/y.

● BMW attempted to withdraw from the price war and increased prices in early Jul. This strategy severely impacted its sales, forcing the company to rejoin the aggressive price war in later months. However, its market share struggled to recover to previous levels.

2025 Outlook

Firstly, we anticipate domestic-made passenger car deliveries to grow +5-7% y/y to 23.75-24.20 mln units in 2025, with the NEV penetration rate to increase to 56-60%. This implies NEV deliveries will grow +24-35% y/y (13.30-14.52 mln units in total).

Secondly, we expect the competition to intensify in affordable vehicles (below RMB 180K) as advanced intelligent driving systems become more mature and widely equipped.

Lastly, we have below expectations for major EV players in 2025, based on their 2024 performances, announced product roadmaps, and company strategies:

● BYD will no doubt maintain its leading position in both NEV and overall passenger car sector. Its vehicle intelligence strategy is expected to drive market share gains from both ICE brands and less technologically advanced NEV competitors.

● Xiaomi is expected to sustain its strong momentum, supported by robust SU7 orders and the highly anticipated YU7 launch.

● Xpeng is anticipated to continue its momentum following strong 4Q24 and Jan-25. Successful launches of Mona M03 and P7+ suggest the company has been back on track. Besides, Xpeng's intelligent driving capabilities provide a competitive edge in the evolving market.

● Key models worth noting in 2025 include: Tesla's New Model Y and potentially more affordable model offerings, Li Auto's BEV lineup, Aito's M8, Onvo's new models, Xpeng's G7, and Xiaomi's YU7.

Overall, we reiterate our view that amid the increasingly competitive environment and soft consumer sentiment in China, the key to standing out in the crowded market is to provide more intelligent, competitive, and affordable products.