The end of the EV boom and the plateau in 2025
The VW Group’s performance has also deteriorated due to the rapid “EV shift” (pictured is CEO Oliver Blume).
Governments around the world are encouraging electrification with subsidies and regulations, automakers are promising huge investments, and suppliers are rushing to announce electric component technologies. The entire industry has become convinced that EVs are the only right answer, and by 2025, the backlash is clearly beginning to become apparent.
Although the number of BEV (pure electric vehicle) sales continues to increase, the growth curve has clearly slowed and demand has plateaued. Despite investing large amounts of money in developing expensive batteries and building dedicated factories, BEV sales are not as high as expected… Meanwhile, the internal combustion engine models that had previously generated profits have been narrowed down due to regulations and the company’s own policies.
As a result, OEMs and suppliers, particularly in Europe, are seeing their performance come under pressure, with revised investment plans and job cuts becoming commonplace in the news.
German auto industry takes stance against EU government’s “ICE ban by 2035”
Arndt Franz, CEO of Mahle, a major German supplier, emphasized the importance of “efficient ICEs” such as hybrids and range extenders.
Dissatisfaction with this situation is beginning to be directed at government policy. A prime example is the German auto industry’s stance against the EU’s policy of banning the sale of new cars equipped with ICEs by 2035. At the company’s Tech Day, Arndt Franz, CEO of major supplier MAHLE, emphasized the importance of hybrids and range extenders, and said, “Laws need to be ‘technology neutral’ (rather than solely focusing on electrification).”
He also emphasized that the use of renewable fuels such as eFuel would make ICEs carbon-neutral, and pointed out that if such technologies were to be ruled out, the huge investment currently being made in development would have to be halted, potentially resulting in the loss of 200,000 jobs across Europe.
CEO Franz’s clear comments were so impressive that some German journalists asked if they were criticizing Brussels (the European government).
(Update: On December 16, the EU effectively reversed its ban on the sale of vehicles with internal combustion engines, which was scheduled to begin in 2030. The American business news media, Bloomberg, explained that “the policy change was the result of intense lobbying by automakers such as Stellantis and Mercedes-Benz.”)
America: Breaking away from “arbitrary fuel economy regulations” and moving away from an exclusive focus on EVs
In the United States, the Trump administration is reportedly planning to relax fuel economy regulations.
In the United States, the Trump administration is seeking to significantly revise fuel economy regulations established under former President Biden. It is said that the target average fuel economy (*1) for each manufacturer will be lowered from 50.4 mpg (approximately 21 km/L) by 2031 to 34.5 mpg (approximately 14-15 km/L).
At the same time, the National Highway Traffic Safety Administration (NHTSA) announced that it would essentially revise its interpretation of the law, stating that this figure “must be achievable only by vehicles that burn fuel, such as gasoline and diesel vehicles.” This represents a “reset” (*3) of the arbitrary method that was possible under the Biden administration of “raising average fuel efficiency by selling a large number of BEVs.”
Automakers will be less pressured to increase the number of BEVs, and high-margin gasoline and hybrid pickup trucks and SUVs will once again be seen as the moneymakers.
AMG’s return to the V8 shows the resurgence of “emotional value”
AMG is rumored to be returning to a V8 engine from an inline-four plug-in hybrid.
Aside from political and economic considerations such as regulations and investment, we cannot ignore the reality that “cars are products of emotion.” Mercedes-AMG’s struggles with the 63 series, which combines a four-cylinder engine with a PHEV, and its shift back to a V8 engine are emblematic of this. While the four-cylinder PHEV may offer high performance specs, core users remain uneasy, with many saying, “A four-cylinder engine in an expensive AMG is bland,” and “The sound and feel are lacking.” Going forward, the V8 + electrification package, which aims to combine sensuality and efficiency, will likely once again emerge as a mainstream option in the world of premium sports cars.
The answer is not “electrification or ICE,” but “optimization for each application”
The idea of ”the right tool in the right place” will also be necessary when it comes to car power units (photo shows Mahle’s range extender unit).
Looking at global trends in this way, it becomes clear that the binary debate of “electrification or internal combustion engines” is already outdated.
BEVs make sense for compact cars primarily used for short-distance travel in urban areas, while hybrids, PHEVs, and range extenders are realistic options for users who frequently travel long distances. For light commercial vehicle fleets, BEVs will be increasingly adopted in urban areas where overnight charging is possible, while diesel + renewable fuels or hybrids will remain valuable in cold regions and rural areas. In the world of heavy trucks, multiple solutions such as fuel cells, highly efficient diesel, hydrogen, and biofuels will likely coexist in different regions.
The key is to shift to thinking that involves selecting the most efficient powertrain for each application. This involves combining ICE, hybrid, PHEV, BEV, and range extender powertrains depending on the role and usage of each vehicle, such as passenger cars, commercial vehicles, and sports cars. MAHLE’s “Technology Diversity” perfectly embodies this direction.
2026: Strategic electrification
Toyota has long advocated a “multi-pathway” strategy.
2026 should be the year when this way of thinking solidifies as a common understanding within the industry. There will be no turning back on the electrification of vehicles. However, a uniform, radical approach that ignores human sensitivity and is pushed through by political incentives is by no means sustainable.
Instead, a more rational and calm approach to “strategic electrification” will emerge. The global automotive industry will likely move into a phase of searching for optimal solutions that take into account environmental issues, as well as user lifestyles and sensibilities, industrial competitiveness, and employment.
The automotive industry is already regaining its senses. The challenge now lies in whether the governments and administrations of each country can put aside their various motives and adopt a rational stance.
*1 CAFE: Corporate Average Fuel Economy. Average fuel economy for all vehicles sold by each automaker.
*2 NHTSA: National Highway Traffic Safety Administration. It belongs to the Department of Transportation, which is equivalent to Japan’s Ministry of Transport.
*3 “Resetting the Corporate Average Fuel Economy Program” (legal interpretation regarding the “Resetting the CAFE Program”) was released on June 11th.
