bIn the 1980s, Detroit, once a titanic carmaker, was being harassed by rivals from Japan. Ford, General Motors and Chrysler had become rich by selling gas, but when oil prices rose and suddenly cheap, fuel-efficient Japanese models began to look attractive, they were unprepared. Declining sales resulted in the loss of hundreds of thousands of jobs in America’s automotive heartland.
Now Western carmakers are making what a former boss calls a similar “profound strategic mistake” as they step back from electric vehicles (EVs) and refocus on combustion engines just as oil prices are rising once again. Experts say the future of the industry – and millions of jobs – could be at risk. However, this time the threat is from China.
Affordable, well-made electric cars from brands like BYD and Leapmotor are finding buyers across Europe. BYD overtook Tesla this year to become the world’s largest EV seller. Chinese brands, dominated by companies such as Volkswagen, Ford, Peugeot and Renault, are rapidly capturing market share.
In the US, the tug-of-war has been even more intense. Donald Trump has actually derailed the country’s electrification by canceling tax credits for consumers and eliminating exhaust emissions regulations, which he calls a scam.
Andy Palmer, former chief executive of Aston Martin, said: “The worst possible response [from the Europeans] Blink, slow down investing, and hope the market somehow swings in their favor. This will not happen.”
The Iran war makes the West’s EV retreat even more short-sighted. Rising oil prices have already sparked new interest in electric cars after petrol pump prices soared across Europe. German car dealer MeinAuto said EV-related online traffic had increased by 40% since the war began.
Palmer, who also developed the world’s first mass-market EV in the Nissan Leaf and is now chairman of a battery technology firm, said: “Chinese carmakers have moved quickly, built real capacity in batteries and software, and are growing rapidly. If Europe hesitates now, it will give rivals a structural advantage that will become harder and harder to reverse.”
‘Freedom to choose’
The problem is that Western manufacturers are doing exactly that, wiping out tens of billions of expected returns from past EV investments from their books because profits on electric cars are much lower than petrol and diesel.
Stellantis, the group that owns Peugeot, Vauxhall and Fiat, wrote down €22bn (£19bn) in February, while Europe’s biggest maker Volkswagen, which owns Audi, Porsche and Skoda, made a similar move last year. These two control more than 40% of Europe’s car market.
In the US, where trade barriers were erected to stop the wave of Chinese EVs, Ford suffered a $19.5bn (£14.6bn) hit, knocking off several future electric models and killing a battery venture.
These companies are “going through a difficult time”, said Julia Poliskanova, director of EVs at the Brussels think tank Transport & Environment. “They have tariffs in the US, they don’t exist anywhere in China [where homegrown brands are booming] … So they’re thinking: ‘Maybe at least in Europe, we can have a few years where we can prioritize short-term profits by selling petrol and diesel cars.’
“If your tenure as CEO ends in two years, that’s probably a legitimate business approach,” he said. “This is a foolish approach if you want to still be in the car market in 2035.”
In Stellantis, the spindle was particularly sharp. Carlos Tavares, its former boss, was one of the industry’s biggest champions of electrification, but he was ousted at the end of 2024. The automotive group has since announced a reset of its plans, giving customers the “freedom to choose” petrol cars again and introducing new spending on hybrids, which combine an electric motor and a petrol or diesel motor.
“The only fundamental question for carmakers is how to significantly curb emissions,” Tavares told the Guardian by email. “Those who believe EVs are not the solution need to explain ‘how’ to do without EVs.”
European manufacturers have yet to do this in a concrete manner. Instead, they blame weak consumer demand for the retreat. The argument is that high costs and poor charging infrastructure have slowed EV sales, which accounted for only one in five new cars sold in Europe last year.
Meanwhile, BYD is acting quickly, unveiling a new battery that gives its cars a range of 600 miles. It says its new batteries can add 250 miles of range in just five minutes – albeit using megawatt charging points that offer chargers four times faster than those in the UK.
Even Uwe Hochgeschurtz, Stellantis’ former chief operating officer in Europe, who left just before Tavares, said he would have no problem buying the Chinese model. “BYD, Leapmotors are very good, very good cars,” he said. “They sell well because they are quite cheap… I would buy one, if I were a normal consumer, I would consider a Chinese car.”
Europe has ‘no direction’
Politicians are unsure which way to turn. Last December, the European Commission lifted a 2035 ban on the sale of new petrol or diesel cars. Instead, under pressure from Germany and Italy, it allowed manufacturers to make cars with up to 10% of their existing exhaust emissions before that date – in effect, a way to sell combustion engines.
The EU has said these changes “maintain a strong market signal” for electrification, but Transport and Environment estimates the changes mean a quarter of cars sold in 2035 could still run on fossil fuels.
Hochgeschurtz said the mixed messages from Brussels were holding car makers back, essentially forcing them to keep up with all the complexities of multiple energy sources. “[Carmakers] Try to invest on both sides,” he said. “It’s very expensive, but it’s their life insurance.”
He added, “China decided to go electric decades ago. The US has decided to go full petrol with the latest administration… Europe has no direction. If you want to lose the car industry, proceed with illusions.”
But Pascal Canfin, an MEP who was one of the architects of the 2035 ban and chairs the European Parliament’s environment committee until 2024, said efforts to blame politicians were “an attempt at scapegoating”. [The carmakers] “We are losing the technological battle with China.”
He said producers had been “lobbying for this for months” before the ban was lifted. “They are creating instability, uncertainty for themselves that could again jeopardize the entire business model.”
In Britain, carmakers also want ministers to weaken plans to make all new cars zero emissions by 2035. “Other major markets have responded and we should do the same,” said Mike Hawes, head of the Society of Motor Manufacturers and Traders, an industry lobby group. “The EU has crossed the Rubicon.”
A Volkswagen spokesperson said the group is “clearly in favor of electric mobility” and has invested heavily in it. “However, this requires a credible, long-term and binding political framework… The ball is now in the politicians’ court to create the structural conditions needed to make electromobility successful,” he said.
Stellantis declined to comment.
‘The window is getting smaller’
Hochgeschurtz still has hope from Western brands. “Don’t forget, they are still effective,” he said. “And Europeans love their cars. The British love their Jaguars, even though they always break down; the Germans love their Volkswagens, even though they are very expensive.”
Yet the stakes are greater than just holding on to British and German consumers. According to data from think tank Ember, EV sales are growing in India, Mexico and Brazil, where they now hold a higher market share than in Japan. Everyone is excited about cheap Chinese cars.
Poliskanova said: “Western carmakers don’t have products to sell, so they’re rapidly losing ground even in economies that used to be their territory. These aren’t just niche, peripheral markets… they’re actually growing.”
Instead of placing their bets on petrol and diesel, manufacturers should go all-in on EVs, as the Chinese have done to regain lost ground, he said. This will include investing R&D money into the most important part of an electric car: the battery.
Historically, European manufacturers have outsourced battery production, often leaving them dependent on Asian suppliers. By contrast, BYD mines its own lithium and makes its own chips.
There have been some attempts to create European capacity through joint ventures between carmakers and battery producers, but even some of those have stalled. Northvolt, once Europe’s battery darling, went bankrupt last year, and in February a €7.6 billion venture between Stellantis, Mercedes and TotalEnergies canceled plans to build gigafactories in Germany and Italy.
Palmer said focusing on a single energy source would also help carmakers achieve the economies of scale needed to make EVs profitable. He said: “A platform that has to accommodate an internal combustion engine, a plug-in hybrid and a battery electric car is not optimized for anything – it’s the worst of all worlds.”
He agreed that part of the answer lies with policymakers — but whatever they do or don’t do, curbing electrification will cost carmakers more. He said, “The lesson from history is very clear. American carmakers risk repeating the mistakes they made in the 1980s.”
“They still have the engineering talent, the brand and the manufacturing legacy to compete. But the window is shrinking,” he said. “Expect to see more Chinese cars on our roads in the future.”
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