Western Automakers Grapple with Soaring Costs, Tariffs, Fierce Competition, and Stringent Carbon Regulations in EV Transition

Western automakers hit the accelerator on electric vehicles—only to find themselves stuck in regulatory traffic.

Cost Crunch: High expenses and tariffs squeeze margins

Competition Heats Up: Rivals flood the market as demand surges

Carbon Compliance: Strict environmental rules add another layer of complexity

Meanwhile, legacy manufacturers keep betting on subsidies while startups eat their lunch—classic automotive finance theater.

Industry analysts warn of structural disruption and policy strains

Vice President Henner Lehne, of S&P Global Mobility, said the Western auto industry “is clearly undergoing a profound structural disruption.” Automakers have committed large sums toward electrification and digital platforms, but adoption has been slow and volumes are under plan, prompting some to revisit internal-combustion programs once slated for phase-out.

Trade is adding another burden. Competition from Chinese brands remains intense, while the TRUMP administration’s tariff regime and broader protectionist trends are reshaping global flows. “Globalization is in retreat,” Lehne said.

The US starts a probe into Honda vehicles

In the United States, safety scrutiny is the focus. In 2024, the U.S. auto safety agency examined 1.4 million Honda vehicles after a November 2023 recall of 249,000 vehicles. 

In an August 20 letter, the agency said it is opening another investigation to assess the scope and severity of a possible crankshaft manufacturing defect that can lead to connecting-rod bearing to engine failure. 

To cope with the headwinds, many carmakers are pursuing a strategy focused on value rather than volume, favoring higher-margin models instead of mass-market lines, Transport & Environment said. 

The campaign group says Europe’s sales challenges reflect a transition rather than a crisis across the industry. Companies are also expanding hybrid offerings, shifting some production to cheaper countries, and forming collaborations with Chinese companies.

Germany’s VDA said the country’s car industry will focus on more innovation and present its vision at the IAA Mobility car show, with plans to invest around 320 billion euros in R&D between 2025 and 2029, including 220 billion euros in capital investments.

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