Global car sales expected to hit new records in 2025

After a difficult few years, the automotive industry will make a full recovery in 2025 and new-vehicle sales will reach new highs, but trade wars will complicate the transition to electric vehicles (EVs), according to a report by the Economist Intelligence Unit (EIU).

The electric vehicle (EV) market is forecast to increase by almost 16% but trade tensions, strong competition from Chinese EV makers and disputes over decarbonisation targets will pose risks.

After four years of adverse global events ranging from the Covid-19 pandemic to military conflicts in Ukraine and the Middle East, new-vehicle sales across the world’s 60 biggest markets will hit 97.2-million units in 2025, surpassing their 2017 record, says the EUI, which delivers political, economic and policy forecasts for 200 countries.

“Growth in new-car sales was marginal in 2024, but in 2025 the market will expand by a healthier 2.3% year on year, owing largely to expansion in the EV market,” says the report. “Sales of new commercial vehicles, although [growing] slower than in 2024, will rise by a robust 4% year on year. Even so, growing trade tensions, strong competition from China and disputes over decarbonisation targets will pose risks for automotive makers.”

Due to generous subsidy support from global policymakers aiming to engineer a “green recovery”, EVs had a good pandemic, says the report. Their share of new-car sales surged from 3.4% (2.1-million units) in 2019 to 21.8% (13.6-million units) in 2023.

“After this initial jump, the EV market is now moderating as market growth shifts from early adopters to the less enthusiastic mainstream, and the higher base for comparison dampens headline growth. Even so, we expect EV sales to rise by 16.3% year on year in 2025 and surpass 19.4-million units.”

The report notes that direct EV subsidies have been withdrawn in most countries, but many governments still offer some tax relief to buyers and are tightening EV targets for automakers. This, along with EV makers’ own discounts, should support the market.

“For example, policymakers in China phased out EV purchase subsidies in 2023 but still offer tax credits to motorists. Although many car producers benefit from regional incentives, they are also mandated to have EVs account for 20% of their fleet sales by 2025. China and the EU together constitute more than 50% of global EV sales.”

The report noted that although policymakers globally are continuing their efforts to reduce transport emissions through caps and fuel-economy rules, progress will be patchy; for example, in the US emissions standards will depend on the outcome of the November 2024 elections.

Meanwhile Norway, the world’s most rapid adopter of EV technology, aims to be the first country to make all new cars emissions-free in 2025, but is likely to push this target back to 2027 for vans and 2030 for medium and heavy trucks and buses.

This underlines the dearth of policy support for electrifying CVs, as well as challenges related to battery power and fast charging needed for freight transport. These challenges came to the fore in March this year, when EU policymakers pushed back the implementation of Euro 7 emission standards from mid-2025 to 2028, citing the need to strike a balance between environmental goals and the vital interests of manufacturers.

The EU is pushing ahead with tighter carbon-dioxide (CO₂) fleet targets; from January 1 2025 the average emissions of European automakers’ new vehicle sales must be below 93.6 grams of CO₂ per kilometre (g/km), 15% lower than the 2021 baseline of 110.1 g/km. The Commission will remain under pressure next year to delay zero CO₂ emissions target beyond 2035.  

The EIU said 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 originating from all ‘foreign entities of concern’, namely China, Russia, Iran and North Korea.”

China, meanwhile, has set targets for its automakers to purchase 25% 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 US raised import tariffs on Chinese EVs from 50% to 100%, and on Chinese EV batteries from zero to 25%. Canada followed suit in August 2024.

In July, the EU imposed provisional duties of up to 45% on imported Chinese EVs, on top of its standard 10% 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.

“China’s retaliation is likely to 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,” said the report.

“Western and Chinese carmakers will also be forced to diversify their supply chains, either by setting up new production plants for cars or components, or by circumventing the tariffs through existing trade agreements with third-party countries. All in all, the automotive supply chain will continue to be elongated and at further risk of geopolitical fissures.”

These trends pose a challenge for carmakers as supply chains fracture and costs multiply, the report noted. 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 US-based Tesla, 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 to make up half of its vehicle sales by 2025, but had achieved just 16% in full-year 2023.

“Despite these challenges, EVs are on the path to profitability. Tesla has been profitable since 2019, and 2025 may well be the year when it is joined by legacy automakers. Back in 2022 the finance head of BMW (Germany) said that the profitability of the premium carmaker’s EVs would exceed that of fossil-fuel cars in 2025. Although this milestone has now been pushed to 2026, strong growth in global EV sales, combined with lower prices for commodities such as lithium, could mark a turning point.”

General Motors (US) and Stellantis (Netherlands) say that they are on track to become profitable on EVs by end-2024. Even so, EVs will remain less profitable than internal combustion engine vehicles, with the investment needed for the EV transition burdening many carmakers’ finances in 2025.