Three years ago, the global auto industry was gripped by a
collective hallucination. Mesmerized by Tesla's trillion
dollar valuation, traditional car makers convinced themselves
and their investors that they were just one battery factory
away from their stocks. Trading at similar multiples,
Volkswagen promised that 70% of its European sales would be
electric by 20-30, a figure they later bumped up to 80%.
Stelantis went further, pledging a 100% transition.
Even General Motors, a company not historically known for rash
technological bets, set a 2035 deadline to abandon the eternal
combustion engine entirely. Those promises were easy to make
a few years ago, when interest rates were zero and politicians
were writing checks. They're much harder to keep
today. The reality check arrived this
autumn with brutal clarity. In September, Donald Trump
abruptly withdrew the $7500 consumer tax credit, a subsidy
that often tipped the economic scales in favour of going
electric. Combined with his rollback of
emissions regulations, the artificial floor supporting the
US electric vehicle market has effectively collapsed across the
Atlantic. The retreat is different in
mechanism but identical in direction.
The European Commission, bowing to intense pressure from its
auto manufacturers, unveiled plans to dilute its 2035 ban on
new combustion engine cars, the single biggest walk back of
green policy in the block's history, by replacing a hard
with a 90% target. Brussels has quietly conceded
that its flagship industrial policy was colliding with
economic reality. We're witnessing the end of the
Field of Dreams era in EV manufacturing.
Governments and CE OS spent the last half decade operating on
the assumption that if they built the EVs, the buyers would
come. The buyers, however, have
refused to follow the script. The revolution has simply
followed the money but was sold as global inevitability has
dissolved into a patchwork of regional markets defined
entirely by who's writing the biggest checks.
While global EV sales are up, driven almost entirely by a
booming subsidized Chinese market, the Western consumer has
proven far more skeptical. In North America, EV sales have
actually contracted by 1% this year.
Far from the exponential pace promised in PowerPoint decks,
the industry is grinding out a messy, fragmented reality where
geography defines adoption. The industry priced itself for a
global takeover over. What they got instead was a
standoff in the West and a price war in the East.
Consumers have proven stubbornly resistant to purchasing vehicles
that often cost more, depreciate faster and require more planning
to refuel than the cars they already own.
While the E US timeline to end petrol's dominance once looked
ambitious, it now looks like a relic of a different economic
era. The industry is waking up to a
hard truth. The transition to
electrification was priced for perfection, but the customer
experience has been anything bad.
For most households, a vehicle is the second largest purchase
they'll ever make. They accept that it'll lose
value the moment it leaves a dealer's lot, but they rely on
that depreciation being predictable and gradual.
The electric vehicle industry broke this unwritten social
contract. Buying a new EV in 2022 turned
out to be the financial equivalent of setting a pile of
cash on fire to verify that it was flammable.
It worked, but it was an expensive lesson.
Buyers have painfully discovered that these machines age less
like a vintage Porsche and more like an iPhone because the
technology moves so fast. Today's cutting edge EV is
tomorrow's obsolete gadget. We saw this play out brutally in
the UK used car market, where Car Wow showed last year that a
one year old Audi E Tron was trading for 27% less than a
comparable 1 year old model did just a year earlier, while its
diesel equivalent held its value.
This financial pain is not limited to the sticker price,
it's compounded by long term reliability fears.
Consumer Reports recently ranked Tesla as the least reliable used
car brand in America, identifying the very vehicles
hitting the second hand market now as frequent visitors to the
repair shop. A used Tesla might look like a
bargain at current prices, but that discount isn't a gift.
It's the market accurately pricing in the headache of
owning the least reliable used car on the road.
Hertz, the rental giant, worked this out the hard way.
They dumped 20,000 EV's from their fleet, explicitly citing
high repair costs and a lack of customer interest.
When the professionals whose entire business model relies on
managing fleet costs and residual values flee the asset
class, it's a warning sign that the retail buyer should probably
heed. The manufacturers are now
admitting that the map doesn't work for them either.
This week, Ford announced A staggering 19 1/2 billion dollar
write down as it scrapped plans for its flagship all electric
F-150 pickup truck. In 2021, CEO Jim Farley hailed
the Lightning as the truck of the future.
Four years later, it's been consigned to the past, a victim
of sales that collapsed by 72% year on year.
Ford is not alone in its expensive retreat.
General Motors recently booked a $1.6 billion charge to scale
back its own EV production, while Volkswagen is preparing to
close a German plant for the first time in its 88 year
history. We should call these moves what
they are capitulations. Traditional automakers have
realized that without massive subsidies to mask the steep
depreciation and higher running costs, the truck of the future
is a product that very few people will want to buy today.
Even the high priest of the EV revolution, Elon Musk, has
quietly rewritten his own gospel.
For years, the foundational myth of Tesla's valuation was the
promise that it would be selling 20 million cars a year by 20-30,
twice what Toyota sells today. But with sales hovering below 2
million units following two consecutive years of decline,
that ambition has quietly evaporated.
Even the most bullish analysts have stopped defending a target
that would require the company to grow tenfold in just four
years. The exponential growth story is
now dead, and faced with a shrinking car business, the
company has done what any corner tech firm would do.
It pivoted to science fiction. The narrative has shifted
entirely from shipping cars to developing humanoid robots, many
of which will be shipped to Mars to working colonies and full
self driving software products that are perpetually coming next
year but conveniently don't need to be reported on a monthly
sales Ledger today. By promising a future of space
robots, flying cars and robo taxis that don't jet exist,
Tesla's managed to distract investors from the uncomfortable
presence. They are a car company that is
selling fewer and fewer cars in the modern stock market.
A robot in the Bush is worth significantly more than two cars
in the hand. Investors famously prefer a
great story about the future to a spreadsheet showing declining
margins in the present. The financial carnage at Ford
was not limited to the headline grabbing $19.5 billion write
down. That figure is essentially an
accounting adjustment, A belated acknowledgement of capital
wasted on tooling and factories for vehicles that will never be
built. But on top of that, Ford's
electric vehicle division, Model E, has been incinerating actual
cash on the vehicles it did build.
The division recorded a $5.1 billion our operating loss in
2024 and lost another $3.6 billion in the 1st 3/4 of 2025.
These losses are symptoms of a business model that
fundamentally conflicts with the American consumers non
negotiable demand for size. In the United States, the
passenger car is practically extinct.
Trucks and SUVs now make up 80% of new vehicle sales.
For decades, this preference was a goldmine for Detroit.
In the internal combustion era, the manufacturing math was
compelling. Big cars cost only marginally
more to stamp out than small cars, but they could be sold for
significantly higher prices. As Ford CEO Jim Farley
explained, in the gas powered world, the bigger the vehicle,
the higher the margin. Electrification inverts this
logic. In the EV world, the bigger the
vehicle, the bigger the battery. You need to move it.
Since the battery is the single most expensive component,
scaling up doesn't increase your margin, it destroys it.
As Farley noted, customers will not pay a premium sufficient to
cover the cost of massive batteries required to haul a
three ton truck across a state line.
The The result is a product that pleases no one.
To achieve a respectable range, an electric truck needs a
battery so heavy that it erodes the vehicle's payload capacity
and efficiency. To keep the price affordable,
the manufacturer has to eat a loss on every unit.
The electric pickup truck once heralded as the killer app that
would win over Middle America has turned out to be an
engineering contradiction. Recognizing this, Detroit is
pivoting to a compromise that engineers love and purists hate
the extended range electric vehicle.
Ford has confirmed that the next iteration of the F-150 Lightning
will not be fully electric, but will carry a small internal
combustion engine solely to recharge the battery.
This is a tacit admission that for the heavy aerodynamic bricks
that Americans insist on driving, the battery only
solution is currently a dead end.
The fundamental problem facing Western automakers is that
manufacturers are losing money on almost every single vehicle
while consumers remain reluctant to buy them.
Even at the height of the subsidy era, the economics of
building EVs in the West were disastrous.
Boston Consulting Group reported earlier this year that
automakers generally lose around $6000 on every EV sold in
America. For pureplay EV stardom, the
numbers are equally terrifying, though the picture is diverging.
While Rivian finally posted a positive gross profit this
quarter, meaning they make money on the car itself before paying
overheads, they still posted a net loss of billions for the
year. Lucid, meanwhile, continues to
report staggering losses, which Bloomberg estimated at over
$300,000 per vehicle in late 2023, though that figure has
improved slightly as volumes crawl upward.
These entities operate less like businesses and more like
charities for wealthy early adopters.
In the United States, automakers have at least been operating in
a protected environment, shielded from the brutal
efficiency of Chinese competition by high tariffs.
Yet even in this walled garden, they've failed to turn a profit.
Ford's Model E division, as I mentioned, last $5.1 billion in
2024 alone, proving that even without having to fight a price
war against BYD, the cost of manufacturing batteries in the
West is simply too high to generate a return.
The industry has also become dangerously addicted to
government handouts to move metal.
We've seen repeatedly the demand for EVs is not organic.
It's purchased in Germany, the continent's largest auto market.
EV sales collapsed by nearly 40% when the government withdrew its
purchase subsidies. Sales picked back up when new
subsidies were provided. When Italy introduced a new
incentive scheme offering up to €20,000 euros in buyer
subsidies, which is over $23,000, it ran out of funds
almost immediately. This stop start dynamic makes
industrial planning impossible. Manufacturers are being asked to
invest billions in multi decade factory projects based on demand
that can evaporate overnight if a finance minister tightens a
budget or if a new president signs an executive order.
The data seems to show that when the free money stops, the car
stops selling. To understand why the transition
has stalled, you have to understand who was buying these
cars in the 1st place. For the last five years, the
industry hasn't been selling to the general public, it's been
selling to a niche demographic of wealthy, tech obsessed early
adopters. According to Bloomberg, electric
vehicles remain overwhelmingly popular among the wealthiest
Americans, while interest drops off a Cliff as you move down and
the income brackets. The first wave of buyers treated
their EVs like the latest iPhone, a status symbol and a
piece of cool technology. Crucially, they were forgiving
if the panel gaps were uneven, the software had problems, or
the doors wouldn't open. They shrugged it off as the
price of being on the cutting edge.
These are people who view a car door that doesn't quite close,
not as a manufacturing defect, but as a quirky conversation
starter. They treat their vehicles with
the same forgiving attitude that a parent reserves for a
toddler's terrible drawing. Importantly, 84% of early
adopters had access to home charging and most owned a second
gas powered car for long trips. The industry assumed that the
next wave of buyers, the mainstream, would behave the
same way, and they were wrong. The mainstream buyer is not a
tech enthusiast looking for a conversation starter.
There are pragmatist looking for a tool.
They are cost conscious, skeptical of tech for the sake
of tech, and unforgiving of inconvenience.
They generally own only one vehicle, park it on the street,
and expect it to work seamlessly for 15 years.
When this buyer sees a $58,000 car that takes 40 minutes to
refuel and might lose 30% of its range in the winter, they don't
see the future. They see a downgrade because the
early adopters were so enthusiastic, automakers fooled
themselves into thinking that they'd solved the puzzle.
In reality, they had just picked the low hanging fruit.
Crossing the chasm to the skeptical majority requires a
product that's cheaper and more convenient than what they're
already driving. Right now, the electric vehicle
is neither. Nowhere is the disconnect
between policy fantasy and industrial reality more glaring
than in Europe. On the surface, the transition
looks like it's going well. This year, one in five car sold
in the EU was purely electric, a figure that dwarfs the adoption
rate in the United States, where EVs account for around one in 10
sales. In almost any other industry,
capturing 20% of a market in a decade would be a triumph.
But for European regulators, it was a failure that required an
emergency intervention because the emissions targets were set
to ratcher tighter every year, regardless of consumer demand.
Even this healthy sales volume wasn't enough to save the
industry from billions in penalties.
The cracks in the system became obvious in May when EU lawmakers
were forced to pass an amendment allowing manufacturers to skirt
immediate fines for missing their 2025 targets, letting them
make up the difference over the next two years.
It was the first clear signal that the regulatory architecture
was structurally unsound. If the greenest continent on
Earth couldn't hit its own interim targets without
bankrupting its national champions, the 2035 ban was
already looking shaky. To survive the regulatory
minefield, Europe's automakers have been forced into a
humiliating ritual, buying carbon credits from their
competitors who avoid paying fines to Brussels.
Companies like Volkswagen and Stelantis have sent millions of
euros to pureplay EV makers like Tesla and Volvo to pool their
emissions data. From a strategic perspective,
this is madness. European incumbents are
effectively subsidizing the very companies trying to put them out
of business. Every euro paid to Tesla for a
carbon credit is a euro that strengthens a foreign competitor
while weakening the European balance sheet.
It's a system that punishes established manufacturers for
struggling with the transition while directly funding the war
chess of their rivals. It's the corporate equivalent of
paying your bully to stop punching you, only to watch him
use the money to buy a baseball bat.
Having realized that the 2035 ban was unrealistic, Brussels
has now decided to redefine what ban means.
In a classic example of EU bureaucratic gymnastics, the
Commission has unveiled a plan to drop the target from a 100%
reduction in emissions to 90%. The new rules create a complex
system of offsets. Automakers can continue to sell
combustion engine cars, provided that they compensate for the
emissions by using green steel in their manufacturing or by
proving the vehicles run on synthetic E fuels.
This essentially turns the petrol car from a mass market
commodity into a luxury good. As automotive analyst Mathias
Schmidt noted, petrol cars will become the haute couture Swiss
watches of the motor industry, Expensive, complex, and sold
only to those wealthy enough to pay for the regulatory
compliance. This compromise pleases no one,
but it saves face. It allows politicians to claim
that they're still decarbonizing, while allowing
the German auto lobby to keep its engine plants running.
It transforms a clear industrial directive into a maze of
loopholes, ensuring that the future of the European auto
industry will be decided not by engineers or consumers, but by
compliance officers navigating the definition of sustainable
steel. The disconnect, however, is
palpable. While EU commissioners hailed
the move as a pragmatic compromise that still delivers a
90% emissions cut, the industry views it merely as a first step.
French automakers notably described the rollback not as a
solution, but as an initial response to urgent challenges.
Diplomatic code 4. We need much more.
This creates a dangerous game of chicken.
The European auto sector employs nearly 13 million people and
accounts for 7% of the blocks GDP.
It's politically too big to fail, yet commercially too weak
to survive the current rules. Governments are betting that the
industry will adapt. The industry is betting that
when push comes to shove, Brussels will blink again rather
than watch its historic manufacturing base migrate to
China. While the West spends the next
decade negotiating loopholes and refining hybrid trucks, China is
finalizing its stranglehold on the only component that actually
matters, the battery. China currently controls 85% of
global lithium ion cell manufacturing capacity.
For critical minerals like graphite and processed lithium,
their dominance is nearly total. This is not a supply chain gap
that can be closed with a few tax credits or a new factory in
Tennessee. It's a structural monopoly.
This really forces an uncomfortable question for
Western industrial policy. Is a German electric car really
German if it's most valuable and complex component?
The battery is imported from China.
When the battery pack accounts for 40% of the vehicles cost and
determines its performance, the legacy automaker is reduced to
the status of a final assembly plant for Chinese technology.
Western governments are trying to wall off their market with
tariffs, but Chinese manufacturers are simply
climbing over the wall. Companies like BYD are already
scouting locations to build factories inside Europe and
Mexico. They're bringing their supply
chains with them, meaning that they can build electric vehicles
profitably at prices that Western legacy automakers still
can't match, even in their own backyards.
Europe's pivot to green steel offsets might buy its automakers
a few more years of profitability from their piston
engines, but it does nothing to address the fundamental reality
that they've lost the battery war.
Well, European politicians like to frame their decisions as
independent. The reality is that Donald Trump
has acted as a potent accelerant for their retreat.
By slashing US fuel economy standards and removing tax
credits, Trump gave Detroit permission to build gas trucks
again, which US buyers like, inadvertently turning Europe
into the primary battleground for the global EV war.
As the US market walls itself off behind tariffs and
regulatory apathy, the massive industrial capacity built up by
Chinese and Korean battery makers need somewhere to go.
They can't sell their surplus EVs to Americans, so they'll
flood the only remaining open market Europe.
As the Financial Times noted, by slowing the transition in the
US, Trump has effectively accelerated that future for
Europe, forcing the continent to face the competitive onslaught
years earlier than expected. While Europe is worried about
the inflow of cheap Chinese cars, which could cause mass
layoffs at auto plants, other countries like Australia who
don't have an auto industry, are just happy to be getting cheaper
cars. This leads to the central
question haunting Western boardrooms.
Is this retreat a catastrophic strategic error?
Financial journalists and climate think tanks argue that
by taking their foot off the pedal now, Western automakers
are ceding the technology of the future to China, guaranteeing
their eventual obsolescence. They view the pivot to hybrids
as a Kodak moment, a desperate cling to a dying business model.
But there is a more cynical and perhaps more accurate
interpretation. You can only fall behind in a
race if everyone is running towards the same finish line.
For the last five years, the EV race was propelled not by
consumer demand but by government push.
The moment the subsidies were removed in Germany, sales
collapsed. The moment the tax credits
vanished in the US, inventory started piling up rather than
falling behind. Western Automate are likely just
realigning with reality. They're pivoting from building
the cars regulators wanted them to build back to building the
cars their customers actually want to buy.
The events of late 2025 marked the end of the inevitability
narrative, even if the physics of battery efficiency and the
imperative of climate change remain.
For five years, the global auto industry operated on a timeline
dictated by politicians rather than their customers, engineers
or economists. They tried to force a
technological transition to happen overnight by flooding the
market with subsidized capital and banning the competition.
That accelerationist experiment appears to be stalling.
The economics have simply become undeniable.
In 2019, the average new car in the United States cost $39,000.
Today, it costs over $50,000, meaning that consumers are
already feeling squeezed. Even with the federal tax
credit, the average EV still commanded a premium that
mainstream buyers were rejecting.
A looming threat to the EV industry is the cost of fuel.
Big Tech has entered the energy market with an appetite that
makes the auto industry look small.
With open AI planning to build data centers that will consume
23 gigawatts of power in the next five years, or the output
of 23 nuclear power stations and other AI providers planning
similar build out. The electric vehicle is about to
enter a bidding war for electricity against the world's
best funded companies. If EVs have to compete with data
centers Centers for grid capacity, the error of cheap
home charging may come to an end, dismantling the last
remaining economic argument for going electric.
The transition to Net 0 has been indefinitely rescheduled.
The world is now backing away from the edge of the electric
Cliff. According to Bloomberg, plug in
car sales in the US are expected to plunge 30% in the final
quarter of this year to the lowest since 2022.
For next year, they're projecting little or no growth
due to the removal of federal EV tax credits and the weakening of
US fuel economy and emission standards.
The British government has insisted that it will not dilute
plans to shift all new car sales to electric vehicles starting in
2035. I think we can expect to see
more shake UPS in Europe in the coming years as more and more
EVs flood in from China. Ford told the FT that they
reject the idea that they botched their EV transition,
saying that the losses were driven primarily by unrealistic
optimism across the industry about consumer demand for EVs.
Andrew Frick, the head of Ford's petrol, engine and electric
businesses, told the reporters that they are looking at the
market as it is today, not as everyone predicted it to be 5
years ago. Thanks for tuning into this
week's podcast, which is entirely supported by viewers
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Have a great week and talk to you again soon.
Bye.