After four years of adverse global events, annual new-vehicle sales are expected to reach a record 97.2 million units in 2025 with commercial vehicle sales rising by 4 percent, according to EIU Industry Outlook for 2025.
In the last four years, events ranging from the COVID-19 pandemic to military conflicts in Ukraine and the Middle East have affected the global automotive market.
Though new-car sales grew marginally in 2024, the market will expand by a healthier 2.3 percent in 2025 — owing to expansion in the electric vehicle market.
Sales of new commercial vehicles will rise by a robust 4 percent year on year.
The report further predicted that growing trade tensions, strong competition from China and disputes over decarbonisation targets will pose risks for automotive makers.
“The EV transition will also be hampered by the ongoing geopolitical rivalry between China, the US and the EU, which is likely to intensify in 2025. Local content requirements will tighten.
“The US is set to exclude cars made with Chinese supplies of critical minerals from the tax credits offered as buyer incentives under its 2022 Inflation Reduction Act (IRA). The same restrictions already apply to EVs and batteries from all ‘foreign entities of concern’ (FEOC)—China, Russia, Iran, and North Korea,” EIU stated.
China has set targets for its automakers to purchase 25 percent of their semiconductors from local suppliers.
“Tariff barriers will rise as Western policymakers try to prevent Chinese automakers from flooding their domestic markets with low-cost vehicles; already in May 2024 the Biden administration raised import tariffs on Chinese EVs from 50 percent to 100 percent, and on Chinese EV batteries from zero to 25 percent.
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“Canada followed suit in August 2024. In July the EU concluded its month-long investigation into Chinese EV subsidies by imposing provisional duties of up to 45 percent on imported Chinese EVs, on top of its standard 10 percent import duty.
“A final vote is due in November; if approved, the tariffs will increase costs considerably for all EV-makers—Chinese and Western alike—with production operations in China in 2025,” the report said.
Meanwhile, China will likely focus on tariffs for agricultural products but could also include export restrictions on critical minerals needed for EVs.
“In such a global economic environment, we expect automakers to face volatile input costs, especially for EVs. Western and Chinese carmakers will also be forced to diversify their supply chains by setting up new production plants for cars or components or by circumventing the tariffs through existing trade agreements with third-party countries.
“The automotive supply chain will continue to be elongated and at further risk of geopolitical fissures. These trends pose a huge challenge for carmakers as supply chains fracture and costs multiply. Foreign carmakers in China, including Germany’s Volkswagen, will continue to see their Chinese market share tumble in 2025 and beyond.
Meanwhile, China’s EV-makers will try to increase exports despite rising trade barriers. BYD, now the world’s biggest EV maker ahead of Tesla (US), aims to sell 1 million models outside China next year, helped by new plants in Brazil and Hungary.
“As competition intensifies, several automakers will miss the hefty targets that they set to increase the share of EVs in their sales.
“For example, Volvo Cars, Sweden-based, but owned by China’s Geely, aimed to have EVs make up half of its vehicle sales by 2025, but had achieved just 16 percent in the full year 2023.
“Despite these challenges, EVs are on the path to profitability. Tesla has been profitable since 2019, and legacy automakers may join in 2025,” the report added.
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