As we step into 2024, the landscape of the new energy vehicle (NEV) market in China is characterized by a mixture of triumphs and setbacks, encapsulated in a year that many predict will be marked by both opportunity and challengeThe year begins with a notable chill brought about by the news of several emerging companies within the sector facing significant struggles.

These challenges range from production halts, as seen with the high-profile case of HiPhi, to disbandments, such as the troubling notifications surrounding Extreme KDAAdditionally, the well-publicized financial woes of companies like WM Motor highlight a persistent theme of instability that has loomed large over 2024. In contrast to these cold winds, the NEV market as a whole witnessed monumental growth, marking 2024 as a pivotal year that has seen production and delivery figures soar past the ten million mark for the first time in history.

Data from the China Automobile Manufacturers Association reveals that the production of new energy vehicles exceeded 10 million units in 2024, with annual sales nearing 13 million units, reflecting year-on-year increases of 11.1% and a remarkable 37.6% respectivelyThis juxtaposition of cold realities and hot sales indicates a period of intense differentiation within the industry—a macro trend of rapid growth accompanied by the micro reality of a rigorous market cleansing process.

To fully grasp the implications for the NEV industry in the years ahead, one must reflect on past developmentsHistorically, the industry undergoes transformations roughly every three to four yearsThe year 2018 was heralded as the "Year of Genesis," where the primary competition among manufacturers centered around sales volume; 2021 was the "Year of Mass Production," focusing on scaling production capacities; and we now stand on the brink of 2025, which could be characterized as the "Year of Profitability." The significant question remains: which company will emerge as the next profitable entity after Li Auto?

Two notable events over the past year have significantly influenced investor attitudes towards the new energy sector

Advertisements

Firstly, the successful launch of Xiaomi Motors showcased the impressive maturity of the domestic NEV supply chain, effectively dispelling the myth that producing vehicles is out of reach for new entrantsSecondly, Li Auto's transition into profitability highlighted a scalable business model that has reverberated across the market, emphasizing that, regardless of their price positioning, brands can improve their gross margins and potentially turn losses into profits through increased sales.

This evolution illustrates a heightened need for car manufacturers to demonstrate self-sustaining financial modelsIf any brand envisions incurring a substantial loss of 10 billion yuan over the next three years, a drastic shift or even dissolving the company might be the most sensible routeAs industry players ponder their paths to profitability, one stands pivotal: the search for the next brand poised to turn losses into gains.

Current financial reports and sales data indicate that most leading NEV brands, as of January 2025, are still struggling to achieve positive net profits, with varied levels of losses across the boardLeap Motor recorded a relatively modest quarterly loss of 690 million yuan, while brands like Zeekr and XPeng reported losses of 1.139 billion and 1.81 billion yuan respectivelyNIO's situation appears dire, accumulating losses of about 5.06 billion yuan in recent reportsEven with the announcement of resuming operations, Neta's profitability remains elusive, due in part to sales that linger around the 100,000 unit marker.

In considering overall operational health, gross margin figures provide deeper insight into the effectiveness of these companiesThe generally accepted benchmark for gross margin is around 20%, signifying a foundational threshold for potential profitabilityOn this front, Leap Motor distinguishes itself, with a gross margin recovering to 8.1% in the third quarter, a significant leap from a disappointing 1.1% earlier in the year

Advertisements

The brand's sales figures, which rank it third in the new energy market, suggest a trajectory moving towards improved profitability in the future.

Conversely, interim performance from Zeekr and XPeng shows consistent reliability, with gross margins ascending to 16.0% and 15.3% respectively compared to earlier figures of 14.9% and 14%. However, NIO's cumulative sales place it fifth while its gross margin lags significantly at approximately 10%, signaling a need for improvementMeanwhile, Xiaomi Motors has achieved remarkable sales with just a single model, though its status as an emerging player means its financial door is still open to future fluctuationsTherefore, as trends unfold, brands like Zeekr and XPeng are well-positioned amongst their peers to potentially be the first to reach profitability in 2025.

Examining the broader horizon, Xiaomi is also expected to break new ground in terms of financial successes, while other brands will need to remain vigilant and responsive to an evolving market landscape.

Beyond profitability, the "delivery war" is another arena in which NEV companies are fiercely competingOver the past few years, the market has undergone a significant paradigm shift from a focus on simply selling vehicles to effectively delivering themAs various popular models take the stage—such as XPeng’s M03 and Xiaomi’s SU7—the urgency to address delivery timelines becomes prevalent, highlighting the mounting pressure from consumers eager for swift vehicle access.

This urgency is intensified by a market increasingly recognizing the value of prompt deliveries over mere purchasesThe emerging competition among manufacturers, who have largely leveled the playing field in terms of product quality, now increasingly hinges on delivery speedMoreover, local policies offering limited-time exchange subsidies have exacerbated the impatience, driving customers to seek rapid solutions.

The setbacks several manufacturers face on the delivery front stem from myriad challenges, including production capacity, shortages of crucial parts, and labor constraints, compounded by unexpected issues, such as a lack of paint reported by Zeekr—all factors that collectively threaten to impact delivery schedules

Advertisements

Notably, even industry titans like Musk have faced firsthand challenges stemming from a "production crisis,” underscoring the universal nature of these hurdles.

To navigate these supply chain challenges, companies are employing diverse strategies to maintain stabilityThese strategies include self-research initiatives, collaborations within ecosystems such as that of Cyrrus, and joint ventures, as seen with Xiaomi and CATL, aimed at ensuring stable battery supply chains.

Ultimately, the success of the "delivery war" will rely heavily on the financial health of these manufacturersXiaomi’s ability to rapidly scale its production capacity in part hinges on its significant cash reserves, which allows it to maintain extremely short payment cycles with vendorsTesla has echoed this sentiment in its remarks about bolstering supplier relationships through improved contract terms and shorter payment periods, reflected in the gradual reduction of its average account settlement duration to about 100 days, noticeably faster than many industry rivals.

Looking ahead to 2025, the NEV sector is poised for a transformation driven by evolving product offers, industry consolidation, and shifting capital dynamicsThe competition for new models will be fierce, as companies like Xiaomi, Tesla, and XPeng unveil flagship vehicles that not only showcase innovation but also embody each manufacturers' aspirations for market leadership and profitability.

Additionally, the growing trend of integration within the industry is now evident, particularly following the unveiling of CATL's modular platform aiming to redefine partnerships between battery manufacturers and vehicle brandsThis evolution could birth new ecosystems, altering the competitive landscape and giving rise to a more connected industry framework.

Finally, the shifting dynamics of investment in the NEV marketplace highlight the growing role of local state-owned enterprises, which are stepping in to support emerging brands with funding

Advertisements

Advertisements