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The car industry is undergoing its fastest transformation since the invention of the petrol car. Policy has been struggling to keep pace around the world. Now US President Trump is adding a new twist by loosening US fuel economy rules as a way to reduce the upfront cost of new cars, reversing a key policy of Joe Biden.
But the global effects of that decision run deeper than they appear. They will be felt far more sharply in Europe than in the US.
Trump has said the rollback could save buyers about $1,000 on the price of a car. Supporters argue it will make cars more affordable. But the real point is that it protects the profitability of petrol trucks and sport utility vehicles while weakening one of the few regulatory pressures that was compelling US carmakers to expand electric vehicle production. Trucks and SUVs make up 80 per cent of new vehicle sales in the US.
With these looser rules, US carmakers gain political cover to delay capital-intensive EV development, slowing the country’s push towards electrification. If the US builds fewer EVs, it learns less, costs fall more slowly and domestic scale never fully materialises.
Scale is the decisive variable, which is why this moment matters so much. EVs and batteries operate under the same industrial logic as chipmaking, where scale determines long-term competitiveness. Asia was not historically dominant in chipmaking. The US once led, but when investment slowed, Asian foundries expanded, costs fell and supply chains consolidated around the largest makers.
Europe’s strength in chip design could not stop manufacturing from moving offshore either, because scale set the terms of competition. The same logic now applies to cars. Europe’s mastery of combustion engine engineering offers little protection today when batteries and software determine industrial power.
The same pattern now applies to EVs. Asia already dominates this supply chain. About 85 per cent of global lithium-ion cell manufacturing capacity is in China. Most of the rest are in South Korea and Japan. Every incremental improvement in battery chemistry and manufacturing efficiency pushes them further down the cost curve. Average EV battery prices are down to $99 per kWh this year, below the $100 per kWh threshold considered critical for price parity with petrol cars.
That cost gap matters even more now. As Trump’s move gives US carmakers room to ease the pace of their EV push, that creates space for Korean and Chinese carmakers, from Hyundai and Kia to BYD, to gain more scale across the rest of the world.
As Chinese EVs remain shut out of the US by steep tariffs, the expansion of Asian EV capacity will seek markets elsewhere and the next largest open market is Europe. EV sales in Europe are projected by the International Energy Agency to exceed 55 per cent of all new vehicles by 2030 under current policies. Europe does, however, have a lever: it can choose to shut out ultra-cheap Chinese EVs as political pressure to act will be intense if the local car industry appears at risk.
Yet even that will not be enough to shield Europe’s carmakers from fierce competition and margin pressure. Blocking Chinese EVs only shifts the challenge. Korean EVs remain tariff free, due to the EU-South Korea Free Trade Agreement signed in 2010, and directly target Europe’s most profitable segments, not just the low end. With EU-Korea goods trade worth more than €120bn a year, they are considered politically safe imports, making them difficult to target without jeopardising broader trade alliances. Growing production inside Europe means even less room to manoeuvre.
But the real constraint lies deeper. Europe faces higher energy and labour costs, slower scale-up and a fragmented market, all of which will continue to squeeze profitability no matter how it handles Chinese or Korean imports.
Meanwhile, Hyundai, Kia and BYD do not lose their cost advantages simply by building in Europe. They arrive with global EV scale and tightly integrated supply chains and manufacturing processes already optimised for Asian volumes. Those advantages translate into significantly lower costs before European labour enters the equation.
Before Trump’s rollback, this erosion of European EV competitiveness might have played out gradually over the next decade, softened by the expectation that Korean carmakers would focus on the vast US market. But by slowing the EV transition in the US, Trump has just accelerated that future for Europe.
june.yoon@ft.com
