China’s automotive market maintained robust growth in 2024, driven by a surge in sales of electric vehicles (EVs) and plug-in hybrids, hitting record highs despite intense competition and aggressive pricing strategies. The world’s largest auto market demonstrated resilience and adaptability, marking a pivotal year for local automakers and the broader industry, even as the global EV market experienced stagnation.
The Chinese auto market saw passenger vehicle sales rise by 5.3% to 23.1 million units, according to the China Passenger Car Association (CPCA), marking the fourth consecutive year of growth. This steady performance was propelled by new energy vehicles (NEVs), which include electric vehicles and plug-in hybrids. NEV sales surged 40.7% year-over-year, comprising 47.2% of total car sales and edging closer to the symbolic 50% mark.
This remarkable growth was largely fueled by aggressive price competition among automakers and government-backed incentives aimed at promoting greener vehicles. A subsidy program, reminiscent of the U.S. “cash-for-clunkers” initiative from 2009, incentivized buyers to trade in older vehicles for more efficient models. Government subsidies for NEVs reached up to $2,800 per vehicle, while fuel-efficient combustion engine vehicles received up to $2,000 in support.
The burgeoning demand for NEVs has catalyzed significant changes in market dynamics. Domestic champions such as BYD, Geely, and Xiaomi capitalized on the favorable conditions, expanding their market share and reinforcing their positions as leaders in the transition towards electrification. BYD, in particular, stood out with a broad lineup of affordable and premium electric models, benefiting from both the subsidy program and a reputation for innovation.
Tesla, the American EV giant, also reported record sales in China, defying a general slowdown in its global sales. China’s market accounted for a significant portion of Tesla’s revenue in 2024, highlighting the critical role of the Chinese market in Tesla’s overall strategy.
Conversely, many foreign automakers struggled to keep pace with their local counterparts. General Motors, Toyota, and Volkswagen faced dwindling sales and capacity utilization issues at their Chinese plants. These traditional automotive giants grappled with adapting their strategies to the rapidly changing market, where domestic brands were often more agile and better positioned to meet local consumer preferences.
The Chinese government extended the auto trade-in subsidy program into 2025, aiming to stimulate further economic growth and consumer spending. Deutsche Bank analyst Bin Wang projected that the extended subsidies could drive an additional 3.0 million units in vehicle demand throughout 2025.
“The subsidy extension underscores the government’s commitment to sustaining the momentum in the auto industry and supporting the transition to greener vehicles,” Wang noted.
Despite the surge in sales, the Chinese auto industry faced declining profitability. The CPCA reported that profit margins for automakers fell to 4.4% in the first 11 months of 2024, down from 6.2% in 2020. This decline reflects the impact of the prolonged price war, which forced both automakers and suppliers to offer steep discounts and reduce component prices.
The price competition, while beneficial for consumers, posed significant challenges for the industry’s financial health. Suppliers and dealers, in particular, bore the brunt of the price cuts, struggling to maintain profitability amid shrinking margins.
As China’s auto market evolves, automakers are expected to continue navigating the dual pressures of innovation and competition. Local companies are likely to push forward with advancements in battery technology, autonomous driving, and smart vehicle ecosystems to maintain their competitive edge.
Meanwhile, foreign automakers will need to adapt their strategies, potentially through partnerships with local firms, increased investments in R&D, and greater alignment with consumer expectations for NEVs.
