the State of the American Auto Industry

Shifting Consumer Preferences: Trucks, SUVs & Hybrids in the Spotlight

The U.S. market has decisively moved toward larger vehicles: today, around 80% of all vehicles sold are trucks or SUVs, favored for their commanding presence and perceived safety.

Meanwhile, hybrid vehicles are playing a strategic bridge role. With full EV adoption still constrained by cost and infrastructure, hybrids—especially models like the Ford F-150 Hybrid, Toyota RAV4 Hybrid, and Honda CR-V Hybrid—are steadily gaining traction. Industry forecasts suggest by 2025, one in four vehicle sales could be an alternate powertrain, such as a hybrid.

Electrified Future Facing Headwinds

a. EV Market — Slower Growth Ahead

Electric vehicle sales growth is cooling: early 2025 saw a modest 1.5% year-over-year rise, but Q2 delivered a 6.3% decline in new EV sales. BEVs and PHEVs jointly now account for about 10% of U.S. new car sales, up from previous years—but adoption is decelerating.

Black Book warns that removing EV tax credits could slice BEV market share down to 7.7%, significantly dampening future growth.

b. Policy Shocks and Credit Disruption

The recent end of the $7,500 federal EV tax credit, the phase-out of zero-emission credits, and the suspension of Corporate Average Fuel Economy (CAFE) penalties are creating shocks for automakers. Analysts anticipate a sharp EV sales drop in 2026, with automakers potentially shifting focus back toward hybrids.

c. Automakers’ Countermoves

Ford is aggressively responding with a $5 billion investment in a new affordable EV architecture and a compelling $30,000 EV pickup, targeted for 2027. To make room for this shift, Ford will discontinue the Escape and Corsair SUVs in 2026 at its Louisville plant.

Tariffs, Trade & Domestic Pressures

a. Rising Costs from Tariffs

A surge in tariffs—on vehicles, parts, steel, and aluminum—is raising production costs. Estimates suggest a 10–15% increase in car prices, with a projected 1-million-unit drop in U.S. sales.

b. Supply Chain Realignment

Trade actions are disrupting North American integration. Initially exempt, USMCA-compliant imports lost that protection in April 2025—leading Stellantis to pause some Mexican/Canadian factories and plan layoffs. Michigan Governor Gretchen Whitmer has warned the administration about losing nearly 600,000 industry jobs due to these tariffs.

Labor Relations & Cost Pressures

The 2023 UAW strike, historic in scope, won record-setting wage increases, cost-of-living adjustments, and protections around plant closures as EV production grows. But the cost implications are high—adding over $1,000 per vehicle produced by the Big Three—and highlighting non-union competitors like Tesla and foreign transplants as advantaged.

Technology, Mobility & Emerging Models

a. EV Infrastructure & Battery Tech

Battery costs are falling rapidly—from $139/kWh to $115/kWh—and cold projections suggest $80/kWh by 2026, potentially enabling EVs to reach price parity with ICE here in the U.S. Battery and charging infrastructure investments are underway, with >250 GWh in new U.S. production and growing public networks.

Still, NEVI infrastructure funding has been suspended—less than 400 charging ports were built under the program through April 2025—creating some deployment gaps.

b. Autonomy & Software Mobility

Full autonomy remains distant, but advanced driver-assist systems (ADAS) are becoming commonplace. Over 80% of new cars now offer features like lane-keeping and adaptive cruise control. "Servitization" and mobility services are also rising—car subscriptions, OTA software, and fleet-as-a-service models are transforming how automakers monetize vehicles.

c. Startups and Innovation

U.S.-based startups like Slate Auto are entering the fray—backed by Jeff Bezos and others, developing modular EV pickups.

Outlook: A Rocky Yet Adaptable Road Ahead

Electrification will continue, but is increasingly bifurcated—hybrids may temporarily outpace EVs amid policy uncertainty.

Tariffs and labor costs are reshaping supply chains and pressuring big automakers to rethink pricing and investments.

Consumer behavior—especially affordability concerns—is trending toward used cars and extended vehicle retention, echoing macroeconomic constraints. Industry resilience will depend on balancing social, policy, and competitive forces, while embracing technological innovation across mobility and software.