The global automotive landscape is poised for significant transformation in 2025, with new shifts driven by growing excess capacity in China, the rise of domestic players, and evolving regulatory dynamics, according to Bank of America's latest commentary on key auto industry themes.
Bank of America analysts highlight that the global auto industry is in a state of shock due to profound changes, particularly in China, where overcapacity is leading to an export boom.
The analysts predict that North America will experience growth, driven by pent-up demand, with US sales expected to remain steady at 16.5 million units in 2025, climbing to over 18 million units by 2028.
The auto sector is also bracing for substantial regulatory changes in 2025, with the new US administration likely to roll back some key regulations. Among these is the ACC II mandate, which requires aggressive targets for electric vehicle (EV) sales in California and other states for the 2025 model year.
Analysts foresee President Trump potentially repealing this regulation, igniting a legal battle with unclear outcomes. In addition, the administration may remove federal incentives for EVs and roll back some environmental standards, impacting the sector’s transition to cleaner technologies.
Despite the challenges, Bank of America expects both new and used vehicle pricing to remain resilient in 2025. New vehicle transaction prices (ATPs) have aligned with pre-pandemic trends, and monthly vehicle payments as a percentage of disposable income are within affordability limits. Meanwhile, used car prices have stabilized after a significant drop in 2023. The supply of late-model used vehicles is constrained, supporting higher pricing.
Given the global overcapacity and the shift towards EVs and autonomous vehicles (AVs), analysts predict increased consolidation, partnerships, and alliances within the industry. A recent merger between Honda, Nissan, and Mitsubishi reflects this trend, as companies seek scale to address the challenges of technological transitions and market pressures.
Meanwhile, the development of autonomous vehicles continues to gain momentum, with robotaxi fleets expanding and creating the need for a federal regulatory framework. Although AVs are primarily regulated by state laws, a standardized federal framework is expected to emerge in the coming years, promoting further advancements in AV technology.
As for individual stocks, Ferrari (NYSE:RACE) (RACE), Aptiv (APTV), and AutoNation (AN) were named by Bank of America analysts as ones that could outperform in 2025.