I’ve been involved with the automotive sector as far as I can remember, and one thing continues to fascinate me: the future of automobiles. We’ve all seen futuristic vehicles—in movies for us regular folks and at auto expos for the enthusiast. While the automotive industry cannot fulfill everyone’s dreams and wishes, we’ve certainly come a long way from Fred Flintstone running with his car—or, more realistically, from steam engines and the cars of yesteryear. In some cities, we don’t even need drivers anymore—I could be writing this in the back of a driverless car on the way to my next meeting!
Looking ahead to the future, there is no doubt that the automotive world is on the brink of a paradigm shift driven by unprecedented technological advancements and a deepening commitment to sustainability. However, such technological advancements come with challenges—we’ve moved toward EVs, but issues like range anxiety and lack of charging infrastructure continue to be challenges for the masses. While most of these issues can be overcome, it won’t happen overnight. It will take some time, and this time will be the most challenging for the auto industry.
As we move into 2025, some of these challenges are already slowing down growth in the auto industry. Global economic slowdowns and fierce competition from Chinese manufacturers have already slowed the growth of EVs; in fact, major OEMs, such as Ford, Stellantis, and Volkswagen, are already revising production plans and scaling back their forecasts, indicating a shift from the previously optimistic outlook for the industry.
Despite this, 2025 promises to be pivotal, with potential breakthroughs in autonomous driving technology and a stronger push toward hybridization and sustainability. It’s a transformative time for the industry, and I’m truly excited to see how far we can go in the new year. My team of analysts at MarketsandMarkets (MnM) pooled their brains together and came up with the following predictions.
EVs and Global Car Sales Will Run Out of Juice
The biggest bet my team is making is on EV slowdowns. Just a few years ago, EVs were the talk of the automotive industry. However, EV sales, once skyrocketing, are now experiencing a slowdown—global electric light vehicle sales are expected to reach 18.7 million in 2025 from 17.4 million units in 2024, at a mere 7.4% growth YoY. Compare this to last year’s growth of around 48%, and you’ll understand the gravity and extent of the slowdown. In the US, Trump’s mission to roll back strict vehicle emission standards and end the current USD 7,500 EV tax credit will make electric cars less affordable for many consumers and increase sales of combustion engine vehicles. This is reflected in the fact that EV sales in the US are expected to grow at a measly 6.7% in 2025.
Most volume OEMs are scaling down production plans and moving towards hybrids and plug-in hybrids, as these are not only cheaper and easier to adapt to than full EVs but also offer flexibility, effectively addressing concerns related to range anxiety. Chinese plug-in sales were up 37% compared to 2023.
My MnM team also expects lower growth for global light vehicles—barely 1.3% YoY in 2025 and expects OEMs to shut down or restructure their manufacturing footprint as they confront a challenging market landscape. Besides shutdowns and workforce cuts, declining sales and competition from Chinese brands will lead to mergers and acquisitions. As of December 2024, Honda, Nissan, and Mitsubishi were in serious discussions regarding a potential merger. The merger is poised to combine Japan’s second-largest carmaker (Honda), third-largest carmaker (Nissan), and the smaller Mitsubishi to create the world’s third-largest car manufacturer by annual sales, following Toyota and Volkswagen. If it goes through, the merger will result in the top 3 OEMs accounting for more than 25% of light vehicle sales in 2025. I wonder if there is more to come as OEMs that lack scale will feel the pressure to merge or form alliances.
Hybrids Will Take the Spotlight
The efficiency of electric power combined with the reliability of traditional engines has contributed to the rise of hybrid vehicles worldwide. Hybrid vehicles offer the perfect compromise of lower emissions and improved fuel economy without the need for charging. In 2024, hybrids saw a YoY growth of over 19%, which is expected to increase to over 23% in 2025.
Various OEMs, including Toyota, Hyundai-Kia, Renault-Nissan-Mitsubishi, and Stellantis, already offer a large portfolio of hybrid variants, including mild and full hybrids, while BYD, Stellantis, and Volkswagen are focused on building a stronger PHEV portfolio. Hyundai is planning to ramp up its hybrid offerings under its ‘Hyundai Way’ strategy from seven to 14 models by 2030, while Suzuki is introducing an affordable hybrid powertrain in 2025, starting with its Fronx model. Toyota continues to emphasize hybrids as a crucial part of its electrification strategy, with a series of hybrid launches planned for 2025.
As EV makers in China engage in a price war due to declining demand, Chinese brands with strong hybrid offerings are gaining popularity. A few hybrid models are even priced below their EV and ICE counterparts, further attracting Chinese consumers to hybrids, especially plug-in hybrid (PHEV) and extended-range hybrid (EREV) models.
Software-Defined Vehicles (SDVs) Will See High Demand
Software-defined vehicles (SDVs), where critical functions like steering, braking, and infotainment are managed by software, will see rapid growth over the next few years. SDVs are not only more efficient and safer but can also be updated with the latest technologies via software, keeping them up to date in a constantly evolving industry. The SDVs market is expected to reach 7.6 million units in 2025 from 6.2 million units in 2024, with North America commanding a 43% share, as new-age OEMs focus on BEVs and software-driven architectures. Major technology providers like NVIDIA, Intel, and Qualcomm are solidifying their roles in key areas such as ADAS, electrical/electronic (E/E) architectures, and cloud computing solutions, which will usher in a new era of smarter, more connected, and more efficient vehicles.
Driverless Vehicles Will Be the Future of Connected Cars
2025 will also see the automotive industry moving from Level 2 autonomy to Levels 2.5 and 3, representing a significant evolution in automotive technology and enhancing vehicle automation and safety. In fact, almost 40% of all autonomous vehicles sold in 2025 are expected to have L2 ADAS features, with select regions seeing commercial expansion of vehicles equipped with L3 ADAS features. German OEMs already have a full roadmap from L2 to L3 in place, with Mercedes Benz commercializing their DrivePilot system and BMW to follow soon.
The new year will also see L4 implementation, with companies like Baidu, Pony.ai, and WeRide already conducting extensive road tests across various cities. Initiatives and support from the Chinese government, in the form of pilot zones and regulatory frameworks, are accelerating this progress. OEMs like Xpeng have a Tesla-like approach and already offer an FSD-like system—Xpeng offers City NGP (navigation-guided pilot) features in Beijing and Shanghai—to follow navigation routes and ply on city roads. While true commercialization for L4 is still some time away, OEMs are advancing their technologies and navigating regulatory challenges to introduce and test L3 and L4 automation, setting the stage for increased adoption of autonomous vehicles.
Chinese EV Brands Will Rule the Light Vehicle Segment
Despite the anticipated slowdown for EVs, China will remain a market leader and global influencer for electric vehicles. China is already the world leader in EV sales, with over 60%, and this is expected to increase in 2025, mainly due to its controlled supply chain, continuous innovation, and expanding global presence. Lower tariffs, the allure of cutting-edge battery technology, and the growing popularity of Chinese electric car brands in the UK and other European and Asian markets further contribute to increasing exports, which are expected to cross 3 million units by 2025. China’s share in Europe’s EV market—9% in 2024—is projected to rise to 12% by 2025.
In 2025, China is set to sell more electric vehicles than traditional ICE vehicles, positioning it years ahead of Western countries. China plans to achieve its target—set in 2020 for EVs to account for 50 percent of car sales by 2035—a whole ten years ahead of schedule. The rapid rise of the Chinese EV industry is threatening leading manufacturers in Germany, Japan, and the US.
Luxury Car Sales Will Skyrocket Over the Next Few Years
Thanks to China’s ‘throw the kitchen sink at it’ attitude toward designing cars, automakers have been forced to redefine the luxury segment. With most cars having all possible features, carmakers are focusing on differentiating models for the rich. Ultra-luxury is set to become a common term in the auto industry, with automakers trying to outdo each other by incorporating super luxury materials and features in their vehicles. In the luxury and ultra-luxury segment, SUVs, or Sport Utility Vehicles, are expected to be the most sought-after, with almost 60-65% of the overall sales of luxury cars in 2025. They’ve become the ultimate uber luxury car of choice for the mega-rich and helped the margins of Aston Martin, Lamborghini, and others. The focus on sustainability has made even celebrities conscious, giving rise to a new breed of electric luxury vehicles. Once considered a niche market, EVs are now gaining traction in the luxury segment and will account for an estimated 10-12% of sales by 2025. With its booming affluent population, China is at the forefront of this transformation, propelling the growth of the luxury vehicle market.
Integrated Powertrains Will Be Standard in Electric Vehicles of the Future
We will see huge growth in integrated drive ePowertain systems that reduce weight, cost and offer other improvements like improved vehicle range and efficiency. In the future, advanced integrated solutions, such as 4-in-1, 5-in-1, and X-in-1 systems, which integrate even more components (like DC-DC converters and onboard chargers), will dominate, leading to lighter, cheaper, and more efficient electric powertrains, driving the next generation of high-performance and mass-market EVs. The integrated powertrain segment is expected to hold ~60-65% of the total e-powertrain market in 2025, with Asia Pacific expected to hold over 60% of the global market.
Car companies plan to increasingly integrate powertrain components in the next five to ten years, mainly by combining onboard chargers with batteries. Tesla already employs single inverter housings across its models, allowing efficient integration of power electronics, while BYD uses an 8-in-1 powertrain solution that integrates multiple components, including the onboard charger and DC-DC converter, into a single unit. This shift is driven by the need for more efficient power management in electric vehicles and will result in smarter and more streamlined EV designs.
New business models – Multi Cycle Leasing and Energy Services – Will Offer Carmakers New Revenue Streams
With battery technology improving so much over the last decade and reaching over 7000 cycles and battery manufacturers like CATL offering warranties of 1.2mn km and more (for Commercial vehicles), the battery will outlast the life of vehicle in the future and even have a higher residual value. Therefore, OEMs are considering new business models to manage profitability of their EV business like multi year EV leasing (2nd and 3rd year EV subscriptions) and offering Energy Management services that combine energy storage, micro grid services, V2G and battery leasing/swapping services.
Conclusion
For the first time in many years, the auto industry’s focus is not solely on EVs. Sure, China—and thereby its global competitors—are still producing top-notch EVs at ridiculous prices, and Tesla’s valuation has crossed a trillion dollars, but EV sales growth will begin to dry up in 2025. I may be wrong, but I think 2025 could very well be one of those quiet years in the automotive industry that come along every once in a while. Let us catch up in 12 months and see if me and my team got it right (or wrong).
