After a decade of bold promises, the auto industry is waking up to the limits of policy-driven electrification (or maybe anything). OEM investment is shifting and realism is replacing rhetoric from government and industry alike. That’s not a bad thing.
For much of the past decade, automakers followed a single path. They poured money into EVs to meet government targets in China, Europe and select U.S. states seemingly without limit while using profits from gasoline and diesel vehicles, especially trucks and SUVs, to fund the transition. At one point, I calculated the industry had spent at least $400 billion globally on the EV transition, which was an underestimate since it didn’t include all Chinese OEMs.
By 2024, it looked like the global shift to EVs was well underway and a total given.
This year has blown that view right out of the water. Consumers in the U.S. and other parts of the world spoke and loudly. Political support, subsidies and regulations that would have forced EVs (and banned internal combustion engines in some cases) began to wobble. OEMs are now responding in some cases by slowing EV rollouts, reviving hybrids and delaying other investments. My research shows that many OEMs have quietly walked back net-zero promises or at least delayed them.
Also interesting: analysts were projecting a straight line to an all-electric future. Firms like BloombergNEF once spoke confidently of 100 percent EV sales by 2040, and it was heretical to even dare to question such analyses for fear of being branded a denier. As the chart below shows, those lofty projections have since been cut in half.
The new consensus is settling closer to 35–45 percent global EV share by the mid-2030s, and even that assumes continued growth in China. Outside China, the math no longer works. Consumer demand has flattened, subsidies are ending, and infrastructure remains patchy.
The lesson is simple: the global EV transition was built on aggressive assumptions about cost, policy, and consumer uptake that haven’t held. Markets are now correcting those expectations, and automakers are following suit.
The EV Boom Is Splintering
Recent analyses from the International Energy Agency expect global EV sales to reach 17 million this year, a record high. Yet almost 60 percent of those sales are in China, where state policy, subsidies and infrastructure continue to drive the market. In the U.S. and Europe, momentum has faded.
U.S. EV sales grew modestly in 2024, but demand has cooled, especially for higher-priced models. Europe’s EV market has flattened as subsidies end and economic uncertainty bites. Hybrids, meanwhile, are back in force — even in China, as the figure below shows.
According to company statements and financial reports, Toyota, Ford, and Honda are seeing strong hybrid growth across SUVs and trucks. And GM, Stellantis, and Volkswagen are reintroducing plug-in hybrids as part of a broader shift to profitable, flexible portfolios.
China remains the exception. BYD and Geely continue to dominate with low-cost EVs and plug-in hybrids backed by deep vertical integration and state support. Their growing export ambitions into Europe and Southeast Asia now pose a direct challenge to Western OEMs that are still wrestling with technologies, costs and especially, politics.
Policy Reversals Create Whiplash
The political foundation that once supported electrification is now fragmenting. In the United States, the One Big Beautiful Bill Act (OBBBA) ended federal EV tax credits in September 2025 and eliminated fuel economy penalties. California’s ZEV mandate (Advanced Clean Cars II (ACCII)) was struck down through the Congressional Review Act and is now being litigated, and EPA’s 2024 Multipollutant Rule is being rolled back entirely and will be. Some version of policy stability will now be found in the courts, but it won’t come until 2028-2029. President Trump came to office promising that he would end the EV mandate, and it would appear the Administration has not only done that but is setting up a pathway by which no EV mandate can ever be imposed again. It remains to be seen whether they’ll succeed.
Europe is wobbling too. Germany has scrapped EV subsidies, and France is tightening incentives to favor domestically produced cars. The EU has stretched its 2025 CO2 target over three years, easing pressure on automakers to go all-in on BEVs.
China stands apart. Its New Energy Vehicle policy remains strong, but that has triggered trade tension. The U.S. and EU have both imposed new tariffs on Chinese EVs and components, setting up a wave of retaliation and cost pressure across global supply chains.
Automakers Shift to Capital Discipline
Across the board, my research shows that automakers are rethinking where and how they spend, and quickly. For example, the chart below, based on company reports and financial statements shows a clear trend toward hybrids.
For example, GM has cut US$1 billion in EV spending and revived plug-in hybrid plans. Toyota and Honda are channeling most of their new investment into hybrids and software. Volkswagen and Mercedes have paused new EV factory projects, while Renault is offloading risk to its Ampere spinoff.
Only Chinese players such as BYD and Geely are still pushing hard on EVs, supported by state-backed financing and domestic scale. For everyone else, the age of unlimited electric vehicle spending is over. Capital is being redirected toward profit stability and flexibility.
As they trim EV spending, automakers are betting heavily on software-defined vehicles and advanced driver assistance systems as new sources of growth. Ford is monetizing BlueCruise, Hyundai is expanding connected-car services, and GM’s Ultifi platform is turning vehicle data into subscription revenue. These efforts point to a broader shift from selling hardware to building digital ecosystems.
Another quiet development is the move toward battery circularity and energy storage. GM’s partnership with Redwood Materials, BMW’s closed-loop systems, and Toyota’s recycling programs show how battery reuse is becoming part of long-term planning. Stationary energy storage, still in early stages, is emerging as the next frontier for a few automakers looking to extend their role in the energy system beyond vehicles.
The IONNA joint venture between BMW, GM, Honda, Hyundai, Kia, Mercedes and Stellantis marks another major turn. For the first time, competitors are treating charging infrastructure as shared strategy rather than a necessary expense. With 30,000 high-power chargers planned across North America, IONNA reflects the recognition that reliable, accessible charging is now core to business success.
Realignment, Not Retreat
Automakers are not simply navigating a technological transition: They are recalibrating in real time to political upheaval, trade realignments, policy rollbacks and shifting consumer sentiment. In this environment, traditional long-term planning cycles offer little protection. Flexibility, optionality and regional differentiation are now essential. The regulatory risk once confined to emissions standards or fuel economy rules now cuts across industrial policy, trade enforcement
After a decade of bold promises, the auto industry, governments and others are waking up to the limits of policy-driven electrification. That’s not collapse, it’s a course correction. For too long, governments, capital markets and some OEMs convinced themselves that 100% EV mandates and subsidies could bend consumer behavior and industrial economics to their will. Reality is proving tougher.
Hybrids are back because they make sense for consumers and for balance sheets. Investment is shifting toward what delivers value, a range of different types of vehicles for different types of consumers and their individual needs, platforms that generate profit and technologies that can scale without endless public support. None of this a bad thing.
That correction also matters for the environment. A transition that ignores economics and consumer realities won’t last. We have now experienced this over the last 10 years. The faster policymakers accept that, the faster decarbonization can move from aspiration to execution. True technology neutrality where hybrids, low-carbon fuels and efficiency gains compete on results, not ideology, is the only way to sustain progress at scale.
And none of this changes the need to cut GHG and criteria pollutant emissions. What it changes is how that gets done. A transition built only on mandates and subsidies has produced massive backlash and policy reversals that may stall progress altogether. Real decarbonization happens when technology, economics and consumer demand line up. If hybrids, efficiency gains and cleaner fuels keep millions of drivers moving affordably while emissions continue to fall, that is still environmental progress. The goal should be lasting reductions, not headlines or targets that then crumble under their own weight.
👉👉👉Need help understanding how these shifting dynamics—and the legal and regulatory risks behind them—impact your business?
I provide the strategic insight companies need to navigate change, avoid costly missteps, and protect investments. Learn more here.
