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Automotive outlook 2025
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Trade spats hamper EV transition
3 © The Economist Intelligence Unit Limited 2024
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[email protected]3 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
Automotive outlook 2025
New-vehicle sales will reach new highs in 2025, but trade wars will complicate the
transition to electric vehicles.
• After a difficult few years, annual new-vehicle sales will reach a
record 97.2m units in 2025. We forecast that sales of new cars will
rise by 2% and of new commercial vehicles (CVs) by 4%.
• Electric vehicles (EVs) will remain the best-performing segment,
increasing by about 16% to 19.4m units. Rising trade barriers will
prevent faster market growth, fracturing supply chains and keeping
EV prices high.
• Policymakers will continue with efforts to reduce emissions,
congestion and traffic, but will encounter increasing pushback from
consumers. The outcome of the US presidential election will have
important ramifications for the EV transition.
• Western automakers will remain torn between old and new
technologies as they face growing competition from China. However,
the profitability of EVs will improve as sales continue to soar and
commodity prices ease.
• Automation and artificial intelligence (AI) will continue to be
integrated into new vehicles, but self-driving cars remain some
way off.
After four years of adverse global 2.3% year on year—owing largely
events ranging from the covid-19 to expansion in the EV market.
pandemic to military conflicts in Sales of new CVs, although slower
Ukraine and the Middle East, new- than in 2024, will rise by a robust
vehicle sales across the world’s 4% year on year. Even so, growing
60 biggest markets will hit 97.2m trade tensions, strong competition
units in 2025, surpassing their 2017 from China and disputes over
record. Growth in new-car sales was decarbonisation targets will pose
marginal in 2024, but in 2025 the risks for automotive makers.
market will expand by a healthier
4 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
New-car sales will pick up −3 −2 −1 0 1 2 3 4 5 6
in 2025
% change, year on year −0.2
Asia-Pacific
1.2
2024 1.2
2025 Latin America
5.8
2.3
Europe
4
−2.8
Middle East and Africa
5.6
3.5
North America
Source: EIU forecasts. 0.9
Copyright © The Economist
0.6
Intelligence World
2.3
Unit 2024. All rights reserved.
EV sales will remain a bright spot
Owing to generous subsidy support Although direct EV subsidies
from global policymakers aiming have now been withdrawn in most
to engineer a “green recovery”, EVs countries, many governments still
had a good pandemic. Their share offer some tax relief to buyers,
of new-car sales surged from a and are tightening EV targets
mere 3.4% (or 2.1m units) in 2019 for automakers. This, along with
to 21.8% (or 13.6m units) in 2023. EV-makers’ own discounts, should
After this initial jump, the EV market support the market; for example,
is now moderating as market growth policymakers in China phased out
shifts from early adopters to the EV purchase subsidies in 2023, but
less enthusiastic mainstream, and still offer tax credits to motorists.
the higher base for comparison Although many car producers
dampens headline growth. Even so, benefit from regional incentives,
we expect EV sales to rise by 16.3% they are also mandated to have EVs
year on year in 2025 and surpass account for 20% of their fleet sales
19.4m units. by 2025. China and the EU together
constitute more than 50% of global
EV sales.
5 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
The commercial vehicle market −2 0 2 4 6 8 10
will hold up well in 2025
2.4
% change, year on year Asia-Pacific
2.6
2024
2025 4.3
Latin America
9.1
−0.2
Europe
3.9
2.0
Middle East and Africa
5.6
8.5
North America
4.3
Source: EIU forecasts.
Copyright © The Economist I 5.6
ntelligence World
4.0
Unit 2024. All rights reserved.
Policy delays will hamper
emissions cuts
Although policymakers globally are These challenges came to the
continuing their efforts to reduce fore in March this year, when EU
transport emissions through caps policymakers pushed back the
and fuel-economy rules, progress implementation of Euro 7 emission
will be patchy; for example in the US, standards from mid-2025 to 2028,
emissions standards will depend on citing the need to strike “a balance
the outcome of the November 2024 between environmental goals and
elections, and in Australia, which is a the vital interests of manufacturers”.
laggard in this sphere, fuel-economy However, the EU is pushing ahead
standards will only be introduced in with tighter carbon-dioxide (CO2)
2025. Meanwhile Norway, the world’s fleet targets; from January 1st 2025
most rapid adopter of EV technology, the average emissions of European
aims to be the first country to make automakers’ new vehicle sales must
all new cars emissions-free in 2025, be below 93.6 grams of CO2 per
but is likely to push this target back to kilometre (g/km), 15% lower than
2027 for vans and 2030 for medium the 2021 baseline of 110.1 g/km.
and heavy CVs (trucks and buses). The Commission will remain under
This underlines the dearth of policy pressure next year to delay zero-
support for electrifying CVs, as well CO2 emissions target beyond 2035.
as challenges related to battery
power and fast charging needed for
freight transport.
6 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
Trade tensions will continue to
split supply chains
The EV transition will also long investigation into Chinese EV
be hampered by the ongoing subsidies by imposing provisional
geopolitical rivalry between China duties of up to 45% on imported
and the US and the EU, which is Chinese EVs, on top of its standard
likely to intensify in 2025. Local- 10% import duty. A final vote is due
content requirements will tighten. in November; if approved, the tariffs
The US is set to exclude cars made will increase costs considerably
with Chinese supplies of critical for all EV-makers—Chinese and
minerals from the tax credits offered Western alike—with production
as buyer incentives under its 2022 operations in China in 2025.
Inflation Reduction Act (IRA). The
same restrictions already apply to China’s retaliation is likely to focus
EVs and batteries originating from on tariffs for agricultural products,
all “foreign entities of concern” but could also include export
(FEOC)—China, Russia, Iran and restrictions on critical minerals
North Korea. China, meanwhile, needed for EVs. In such a global
has set targets for its automakers economic environment, we expect
to purchase 25% of their automakers to face volatile input
semiconductors from local suppliers. costs, especially for EVs. Western
and Chinese carmakers will also
Tariff barriers will rise as Western be forced to diversify their supply
policymakers try to prevent Chinese chains, either by setting up new
automakers from flooding their production plants for cars or
domestic markets with low-cost components, or by circumventing
vehicles; already in May 2024 the tariffs through existing trade
the Biden administration raised agreements with third-party
import tariffs on Chinese EVs from countries. All in all, the automotive
50% to 100%, and on Chinese EV supply chain will continue to be
batteries from zero to 25%. Canada elongated and at further risk of
followed suit in August 2024. In geopolitical fissures.
July the EU concluded its months-
7 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
Growth in new EV 0 50 100 150 200 250 300
registrations will slow
further in 2025 Asia-Pacific
38
34
% change, year on year
195
2024 Latin America
53
2025
26
Europe
30
288
Middle East and Africa
58
Source: International Energy Agency; 32
EIU forecasts. North America
26
Copyright © The Economist
Intelligence 24
Unit 2024. All rights reserved. World
16
Increased competition but
greater EV profitability
These trends pose a huge challenge Despite these challenges, EVs are
for carmakers as supply chains on the path to profitability. Tesla
fracture and costs multiply. Foreign has been profitable since 2019, and
carmakers in China, including 2025 may well be the year when it is
Germany’s Volkswagen, will continue joined by legacy automakers. Back
to see their Chinese market share in 2022 the finance head of BMW
tumble in 2025 and beyond. (Germany) said that the profitability
Meanwhile, China’s EV-makers of the premium carmaker’s EVs
will try to increase exports despite would exceed that of fossil-fuel cars
rising trade barriers. BYD, now the in 2025. Although this milestone
world’s biggest EV-maker ahead of has now been pushed to 2026,
Tesla (US), aims to sell 1m models strong growth in global EV sales,
outside China next year, helped by combined with lower prices for
new plants in Brazil and Hungary. commodities such as lithium, could
As competition intensifies, several mark a turning point; General Motors
automakers will miss the hefty (US) and Stellantis (Netherlands)
targets that they set to increase say that they are on track to become
the share of EVs in their sales. For profitable on EVs by end-2024. Even
example Volvo Cars (Sweden-based, so, EVs will remain less profitable
but owned by China’s Geely) aimed than internal combustion engine
to have EVs to make up half of its vehicles, with the investment
vehicle sales by 2025, but had needed for the EV transition
achieved just 16% in full-year 2023. burdening many carmakers’ finances
in 2025.
8 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
What to watch
City limits: Governments across advanced self-driving features and
the world are trying to reduce even additional EV power; whether
traffic and emissions in urban drivers will be willing to pay for them
areas. More cities across the globe is another question.
will impose zero-emission zones,
with Stockholm, Sweden’s capital, AI integration: In 2025 Mercedes
becoming the first to ban fossil-fuel Benz will introduce an AI-based
guzzlers from its centre. “super assistant” in every car that
it makes, while the new EV3 model
In-car subscriptions: As in-car from Kia (South Korea) will feature
tech develops, carmakers are a new voice assistant based on
trying to get drivers to pay monthly ChatGPT. Volkswagen has already
for features such as smartphone integrated ChatGPT into its IDA
integration, assisted driving and voice assistant, helping drivers to
in-car climate control. The new control infotainment, navigation
A3 model from Audi (Germany), and air conditioning, or to answer
set to launch in 2025, will offer basic questions. BMW (Germany)
subscriptions from one month to is testing a personal assistant
three years. Mercedes Benz and powered by the Alexa large
Volkswagen (also both of Germany) language model (LLM), which can
will seek subs for heated seats, explain vehicle features.
EIU's weather forecast for
automotive businesses Automation ICE vehicles EVs Supply chains
in 2025
Source: EIU.
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9 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
US election: the impact
on automotive
Trump: In his first term, Donald Trump reversed Obama-era emissions
targets and fuel-economy standards. We expect similar policies in
his second term to be tempered by his influence of Elon Musk, Tesla’s
founder and now a key Trump supporter. In his campaign speeches, Mr
Trump has revealed plans to revoke parts of the IRA, which contains
EV subsidies and tax breaks, as well as incentives for renewable
energy. He has also criticised government spending on EV charging
networks. Although he has expressed some support for EV sales, he
is also likely to roll back the Biden administration’s target to ban sales
of fossil-fuel vehicles by 2035, although this target is not enshrined in
legislation.
All in all, recent analysis from Carbon Brief, a UK-based climate-
advocacy group, estimates that a victory for Mr Trump in the
November presidential election could lead to an additional 4bn tonnes
of US emissions by 2030 compared with the plans of the incumbent
president, Joe Biden. This means that the US would miss its global
climate pledge under the Paris Agreement to cut emissions by 50-
52% below 2005 levels by 2030.
Harris: The Democratic challenger and current vice-president,
Kamala Harris, has been a strong proponent of the green transition.
Ms Harris is likely to extend the current administration’s policies on
EVs by implementing stricter emissions and fuel economy standards.
She will also continue to focus on reducing Chinese dominance in
important sectors such as EVs, autonomous cars, data security and
AI. We would expect a further uptick in US EV sales in the event
of a Harris victory, as well as stronger investment into EV charging
infrastructure, and domestic EV and battery production.
10 © The Economist Intelligence Unit Limited 2024
Automotive outlook 2025
Trade spats hamper EV transition
Meet the EIU team
Arushi is an analyst in The Specialist subjects
Economist Intelligence Unit’s Macroeconomics,
Industry Briefing team, with Automotive, Supply
particular expertise in the chains, Manufacturing,
automotive industry. In this role, Electric Vehicles,
Arushi is responsible for producing Corporate Journalism risk
industry-related macroeconomic
Arushi Kotecha forecasts for various markets across Languages
the globe. English, French, Hindi,
Analyst Gujarati
Arushi is also an experienced
writer, having previously worked for Location
The EIU’s Competitor Intelligence Gurgaon, India
product as a corporate analyst.
She has spent time speacialising in
automakers’ global strategy, while
also contributing to coverage of
industry trends. Prior to this, Arushi
had a stint as a corporate reporter
for an Indian financial daily.
Ana oversees The Economist Specialist subjects
Intelligence Unit’s industry Automotive, Business
subscription services in London, environment, Healthcare
managing websites, reports, data
and forecasts across six industry Languages
sectors and acting as lead analyst English, French
for our healthcare and automotive
Ana Nicholls analysis. Ana also works closely Location
Director of industry analysis with clients in those two sectors, London
particularly on projects related to
value-based health and healthcare
policymaking.
Ana is an experienced analyst
who has previously spent time
specialising in global economic
and business development as well
as analysis of healthcare policy.
She has a particular interest in
the transition countries of Eastern
Europe.
11 © The Economist Intelligence Unit Limited 2024
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