Bernstein flags growing divide in global EV market in 2025 outlook

Bernstein's 2025 EV outlook highlights a widening divergence in the global market, with Chinese automakers rapidly gaining dominance through sustained R&D and capital expenditure, which has driven their global market share from 14% in 2017 to a projected 27% by 2025 via faster product cycles and lower prices. In contrast, Western OEMs are struggling despite significant investments, burdened by legacy costs and inconsistent execution, leading to limited returns on their EV transition spending and facing potential valuation declines without tangible progress in cost, quality, and technology. This bifurcation signifies a fundamental shift in competitive dynamics, with Chinese firms like BYD increasingly challenging incumbents in their home markets and expanding globally.

Analysis

A Bernstein report highlights a significant bifurcation in the global electric vehicle market, where Chinese automakers are demonstrating rapid advancement while their Western counterparts face stagnation. Chinese OEMs have effectively leveraged sustained capital investment, with R&D as a percentage of sales growing from 2% to over 7% between 2017 and 2023, to achieve faster product cycles, superior quality, and lower costs. This strategy is projected to increase their global market share from 14% in 2017 to 27% by 2025 and has already eroded foreign brands' share within China from 55% to 30%. In stark contrast, Western OEMs are struggling with their EV transition despite substantial spending. U.S. automakers' combined capex and R&D spend reached 11.7% of sales by 2024, outpacing the 10.6% global average, yet has yielded limited returns due to legacy costs and inconsistent execution. Similarly, European firms like Volkswagen, BMW, and Mercedes-Benz are burdened by dual investments in ICE and EV technologies, facing volatile demand amid shifting subsidies and infrastructure gaps. The report warns that without tangible progress in cost and technology, Western OEMs risk continued valuation declines as Chinese competitors like BYD expand their global manufacturing footprint, directly challenging incumbents in their home markets.

Key Decisions for Investors

• Given the clear divergence highlighted by Bernstein, investors should consider re-evaluating exposure to the EV sector, potentially favoring Chinese OEMs like BYD, which demonstrate strong execution and market share gains, over Western legacy automakers facing strategic and financial headwinds.
• For positions in Western automakers such as Volkswagen, BMW, and Mercedes-Benz, it is critical to scrutinize capital allocation efficiency and demand tangible evidence of returns on their high EV investments, such as improved cost structures or concrete market share gains.
• Monitor the progress of Chinese firms' global expansion, particularly BYD's new manufacturing sites in Europe and Asia, as their success in these markets will be a key indicator of intensifying competitive pressure and potential margin compression for incumbent Western brands.
• Be mindful of macro and regulatory risks, including potential government responses to Chinese overcapacity and shifts in EV subsidies in Western markets, which could significantly alter the competitive landscape and profitability for all automakers.