SOUTH-EAST ASIA: The global automotive industry is facing its biggest “policy shock” in a decade, as a compass that once pointed firmly towards electric vehicles (EVs) begins to swing back.
Analysts at Cox Automotive and Edmunds agree the industry is approaching a major turning point.
The pressure is no longer just competition between internal combustion engine cars and EVs, but also slowing economies in many countries, shifting government policies, and consumers’ weakening purchasing power.
Together, these forces are rippling through every link in the automotive supply chain.
The world brakes on EVs as governments roll back support
As major powers in the United States, China and Europe cut back support at the same time, carmakers have been forced to cancel or shelve production plans.
Under President Donald Trump, environmental support policies have been dismantled almost across the board. The removal of the US$7,500 tax credit (about 250,000 baht) has led S&P Global Mobility to project that EV sales in the United States may have fallen by as much as 30% in the final quarter of last year.
The European Union has also begun to accept that banning petrol and diesel cars will take longer than planned, as consumers remain concerned about vehicle prices and charging infrastructure that is still far from comprehensive.
Regulators are therefore stepping back from stricter mandates and easing emissions standards to reduce pressure on carmakers that are carrying massive costs—costs that could spill over into the wider economy.
China, despite being the world’s largest EV market, has also adjusted course to address “oversupply”. Beijing has summoned senior executives to warn against excessively aggressive price wars.
At the same time, China ended its full tax exemption policy at the end of December, and a subsidy scheme of up to 20,000 yuan for trading in older internal combustion vehicles for new cars is expected to end soon.
That has prompted forecasts of a sharp slowdown in sales in early 2026, potentially triggering consolidation among weaker manufacturers.
Meanwhile, tariffs, trade agreements and regulatory changes are adding uncertainty for both carmakers and consumers. A renegotiation of trade arrangements involving the United States, Mexico and Canada, as well as China, could bring new tariffs on imported vehicles and parts, pushing production costs higher.
Analysts warn these policy shifts could drive car prices up again—especially EVs, which are already under significant cost pressure.
China’s “EV crisis”: big fish swallowing the small
Beyond policy backtracking in major economies, China’s market—one of the largest in the world—also looks set to slow this year.
By late 2025, new-energy vehicles (both EVs and hybrids) accounted for nearly 60% of China’s market, suggesting that many consumers with the means to buy have already done so. UBS forecasts that in 2026, sales growth will fall to around half of the previous year’s rate.
The top 10 manufacturers now control more than 95% of the market, up from roughly 60–70% before. Analysts expect a major wave of consolidation, with lesser-known or smaller brands unable to withstand the price war being squeezed out. Consumers, they argue, will increasingly choose only familiar and trusted brands.
Oversupply has forced manufacturers into frantic discounting. A clear example is the Mercedes-Benz EQS EV, which has reportedly seen discounts as high as 432,000 yuan (about 2.1 million baht). The Volvo XC70 has also been discounted by nearly 700,000 baht.
UBS analysts believe this price war could drag on for several more years.
Hybrids: the new hero of the market
As the EV market loses momentum, hybrids are emerging as a bright spot. Experts expect hybrid sales to keep accelerating in 2026.
CarGurus, an online vehicle marketplace covering much of the US market, predicts that nearly one in six new cars sold next year will be a hybrid, as manufacturers approve more new models using the technology.
Although hybrids still use fuel, they can reduce transport emissions and help ease consumers towards a fuller shift to EVs over time.
For Americans worried about the high price of EVs, hybrids are seen as a practical option to cut fuel costs and emissions without being constrained by patchy charging infrastructure.
Major manufacturers are pivoting towards hybrids. Ford Motor, for example, has announced a temporary pause in production of its electric F-150 Lightning pickup line, shifting focus towards hybrid models instead.
CarGurus has described hybrids as one of 2025’s success stories. It also claims the best-selling vehicle in the United States this year was the Hyundai Palisade Hybrid, spending an average of fewer than 14 days in showrooms.
Of roughly 390 vehicle models in the US market, about 87 now offer hybrid technology—nearly 50% more options than five years ago, according to Edmunds.
Stephanie Valdez Streaty of Cox Automotive said the long-term direction of the industry remains electric, but the transition may be slower than expected.
Carmakers are signing deals to sell fewer EVs, production growth is slowing, and instead of focusing solely on fully electric models, manufacturers are placing greater emphasis on hybrids as they try to align output with market demand.
A domino effect for suppliers
With the shift to EVs slowing, most cars on the road will continue to run on petrol and diesel for longer. That means carbon emissions and air pollution are likely to remain elevated for years—seen by many as a setback for global environmental management.
Traditional carmakers have already sunk billions of dollars into EV development projects that they are now forced to cancel or postpone indefinitely, after demand failed to meet earlier targets.
The heaviest impact, however, is falling on suppliers—the upstream parts makers at the foundation of the industry.
Kenny O'Trakoun of RPM Partners said many suppliers bought into the original plans and invested heavily in factories to produce EV components. But when carmakers abruptly changed course, those parts had nowhere to go.
Plants were left idle or running far below capacity, generating losses and causing severe disruption across the supply chain.
Slowing economies drag the global car market down
Looking at the broader global market, after a better-than-expected 2025, analysts forecast that new car sales will begin to slow in 2026. Cox Automotive estimates sales at around 15.8 million vehicles, down 2.4% from the previous year, and suggests this may become the industry’s “new normal” over the next few years.
Slower economic growth, fewer incentives from manufacturers, and borrowing costs that remain high are all weighing on sales.
A direction the world cannot fully reverse
Even as global carmakers hit the brakes and visibly slow EV production plans, few are willing to abandon them permanently for two key reasons: persistent consumer demand and the need to compete globally.
An analyst at BloombergNEF, points out that global sales of internal combustion vehicles already passed their peak eight or nine years ago, after which overall demand for petrol and diesel cars largely plateaued.
Today, at least one in every four new cars sold worldwide is an EV. As China accelerates its transition and exports more EVs globally, the worldwide petrol and diesel market continues to shrink, while the battery market remains the only area still expanding.
For carmakers, a slowdown in the United States may be temporary and politically driven. But as global companies, they cannot ignore other markets that are still moving towards cleaner energy.
Any manufacturer that abandons EV technology now would, in effect, be “raising the white flag” and leaving China to dominate the global market by default. -- The Nation Thailand/Asia News Network
