The auto industry faces a number of challenges in 2025, including a global economic slowdown and fierce competition from Chinese manufacturers. This has slowed the growth of electric vehicles, forcing major manufacturers such as Ford, Stellantis and Volkswagen to adjust production plans and reduce growth forecasts, signaling a change from the industry’s previously optimistic outlook.
However, 2025 still promises potential breakthroughs in autonomous driving technology and a stronger push towards hybrids and sustainable mobility. The analysts at global market research firm MarketsandMarkets (MnM) predict the following key changes.
Hybrid cars dominate the market
The combination of electric power efficiency and the reliability of a conventional engine is driving the growth of hybrid vehicles worldwide. They offer the perfect balance between reducing emissions and improving fuel efficiency without the need for charging. Hybrid vehicles are expected to grow at an annual rate of over 19% in 2024, and are expected to exceed 23% by 2025.
Major automakers such as Toyota, Hyundai-Kia, Renault-Nissan-Mitsubishi and Stellantis already have extensive portfolios of hybrids, including mild and full hybrids. Meanwhile, BYD, Stellantis and Volkswagen are focusing on building a stronger portfolio of plug-in hybrids (PHEVs). Hyundai plans to expand its hybrid lineup under its “Hyundai Way” strategy from 7 to 14 models by 2030. Suzuki will introduce an affordable hybrid powertrain in 2025, starting with the Fronx. Toyota continues to emphasize the importance of hybrids in its electrification strategy, with a series launch planned for 2025.
As electric carmakers in China engage in a price war due to falling demand, Chinese brands with strengths in hybrids are becoming increasingly popular. Some hybrids are even priced lower than their pure electric and internal combustion engine counterparts, further attracting Chinese consumers to hybrids, especially PHEVs and gasoline-powered electric vehicles (EREVs).
Electric car sales may slow down
The auto industry has seen a rapid growth in electric vehicles in recent years. However, the latest forecasts suggest that electric vehicle sales will slow down. Global light-duty electric vehicle sales are expected to reach 18.7 million units in 2025, up slightly from 17.4 million in 2024, representing a growth rate of just 7.4% compared to around 48% last year, representing a significant slowdown.
In the US, Mr Trump’s policy of loosening emissions standards and ending the $7,500 tax credit for electric cars will make electric cars less accessible to many consumers and boost sales of internal combustion engine vehicles, as reflected in forecasts that US electric car sales will grow by just 6.7% by 2025.
Most major automakers are scaling back production plans and shifting to hybrids and plug-in hybrids, which are not only cheaper but also easier to adapt than pure electrics. This also helps address range concerns. Sales of plug-in hybrids in China are expected to rise 37% from 2023.
Global light vehicle growth is forecast to be just 1.3% by 2025. In a challenging market environment, original equipment manufacturers (OEMs) are expected to close or restructure their production networks. In addition to plant closures and job cuts, declining sales and competition from Chinese brands will lead to mergers and acquisitions.
As of December 2024, Honda, Nissan, and Mitsubishi are in serious discussions about a possible merger. The merger would combine Japan’s second-largest automaker (Honda), third-largest (Nissan), and smallest (Mitsubishi) to create the world’s third-largest automaker by annual sales, after Toyota and Volkswagen. If successful, the merger would give the top three OEMs more than 25% of light vehicle sales by 2025.
The question is whether there will be further developments as OEMs lacking scale feel pressure to merge or form alliances.
Software-defined cars will grow strongly
Software-defined vehicles (SDVs), in which critical functions such as steering, braking and entertainment are managed by software, are expected to grow rapidly over the next few years. Not only are SDVs more efficient and safer, they can also be updated with the latest technology through software, keeping vehicles current in an ever-evolving industry.
The SDV market is forecast to reach 7.6 million units in 2025, up from 6.2 million in 2024, with North America accounting for 43% of the market as new automakers focus on pure electric vehicles and software-based architectures. Major technology suppliers such as Nvidia, Intel, and Qualcomm are strengthening their roles in key areas such as advanced driver assistance systems (ADAS), electrical/electronic (E/E) architecture, and cloud computing solutions, ushering in a new era of smarter, more connected, and more efficient vehicles.
Driverless cars will be the future of connected cars
By 2025, the automotive industry will see a transition from Level 2 to Level 2.5 and 3, representing significant advances in automotive technology and increased automation and safety. It is expected that nearly 40% of autonomous vehicles sold by 2025 will have Level 2 driver assistance features (L2 ADAS), with some regions seeing the commercial expansion of vehicles equipped with Level 3 features (L3 ADAS). German OEMs have already made full plans to move from Level 2 to Level 3, with Mercedes having commercialized its Drive Pilot system and BMW soon to follow.
The new year will also see the introduction of Level 4 (L4), with companies like Baidu, Pony.ai and WeRide conducting extensive testing in multiple cities. Chinese government initiatives and support, through pilot zones and regulatory frameworks, are accelerating this process. OEMs like Xpeng are taking a Tesla-like approach, already offering similar systems in Beijing and Shanghai to track navigation routes and traffic on the road.
Chinese electric car brands will lead the light vehicle segment
Despite the expected slowdown in electric vehicles, China will remain a leading and influential global market in the sector. China is already the world leader in electric vehicle sales, accounting for more than 60%, and is expected to increase by 2025.
This is largely due to a tightly controlled supply chain, continuous innovation and an expanding global presence. Lower tariffs, advanced battery technology and the growing popularity of Chinese electric car brands in the UK and other European and Asian markets have also contributed to the increase in exports, which are expected to exceed 3 million units by 2025. China’s share of the European electric car market is expected to rise from 9% in 2024 to 12% in 2025.
By 2025, China is expected to sell more electric vehicles than internal combustion engine vehicles, putting it years ahead of Western countries. China set a target in 2020 for electric vehicles to account for 50% of sales by 2035 – 10 years ahead of schedule. The rapid growth of China’s electric vehicle industry is threatening leading manufacturers in Germany, Japan and the United States.
Luxury car sales will increase sharply in the next few years.
China is creating a new trend in car design, forcing automakers to redefine the luxury segment. With most models packed with features, automakers are focusing on differentiating their models for the upper class. The concept of “ultra-luxury” is gaining popularity in the auto industry, as manufacturers try to outdo each other by incorporating high-end materials and features into their vehicles.
In the luxury and ultra-luxury segment, SUVs are expected to dominate the market, accounting for 60-65% of luxury car sales by 2025. They have become the ultimate luxury choice for the super-rich and have helped drive profits for brands like Aston Martin and Lamborghini. The focus on sustainability has even caught the attention of celebrities, leading to the emergence of a new generation of luxury electric cars. Once considered a niche market, electric cars are now gaining traction in the luxury segment and are expected to account for 10-12% of sales by 2025.
With its growing affluent population, China is leading this trend, driving the growth of the luxury car market.
Integrated powertrains will be the standard for future electric vehicles
In the future, integrated powertrains will grow rapidly, reducing weight, costs and improving vehicle range and performance. Advanced integrated solutions such as 4-in-1, 5-in-1 and X-in-1 systems, which combine more components, will dominate. This will lead to lighter, cheaper and more efficient electric powertrains, fueling the next generation of high-performance and mass-market electric vehicles. The integrated powertrain segment is expected to account for around 60-65% of the total electric powertrain market by 2025, with the Asia-Pacific region expected to hold more than 60% of the global market.
Automakers are planning to increasingly integrate powertrain components over the next 5-10 years, primarily by combining on-board chargers with batteries. Tesla has adopted a single inverter housing for its models, allowing for efficient integration of power electronics, while BYD is using an 8-in-1 powertrain solution that integrates multiple components into a single unit. This shift is driven by the need for more efficient energy management in electric vehicles and will lead to smarter, more streamlined electric vehicle designs.
New business model brings revenue to the auto industry
Battery technology has improved significantly over the past decade, reaching over 7,000 charge cycles, and manufacturers like CATL are pledging warranties of up to 1.2 million kilometers for commercial vehicles. Batteries are likely to outlast the vehicles and have higher residual values in the future. As a result, automakers are considering new business models to manage EV margins, such as multi-year EV leasing (subscribing to an EV for the second and third years) and providing energy management services that combine energy storage, microgrid services, V2G, and battery leasing/swapping.
HQ (according to VnExpress)
