Fork in the road - US, EU, China auto policy analysis

Feat. Peter Sigal, Automotive News Europe; Sam Abuelsamid, Telemetry; Bill Russo, Automobility Ltd.   

In 2025, significant changes in automotive policy and strategy were introduced in the US, the EU, and China, with considerable implications for global automakers, suppliers, and consumers.

In this episode of FISITA's Beyond the Car podcast, we bring together industry experts to look at the key points in each region's automotive priorities, and what they mean for auto industry stakeholders. 

• Peter Sigal is News Editor and Correspondent at Automotive News Europe
• Sam Abuelsamid is VP Market Research and heads up Telemetry Insights' Transportation and Mobility research and advisory practice in Detroit
• Bill Russo is Shanghai-based Founder and CEO of strategy and investment advisory firm Automobility Limited

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Podcast website: Beyond the Car Podcast - FISITA

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For more information about FISITA, head to FISITA.com - and to learn more about the 'Beyond the Car' podcast, you can contact us at info@fisita.com.

Thank you to Martyn Strong for production.

Transcript

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Martin Kahl 0:13

The automotive industry has for decades been a global industry with long supply chains reaching right around the world, everything finely balanced and entirely reliant on long-term planning and certainty. In 2025, however, significant changes in automotive policy and strategy were introduced in the US, the EU, and China, with significant implications for global automakers, suppliers, and of course consumers.

Martin Kahl 0:36

I'm Martin Kahl, CTO of FISITA. And in this episode of FISITA's Beyond the Car podcast, we bring together industry experts to look at the key points in each region's automotive priorities and what they mean for auto industry stakeholders. Peter Sigal is news editor and correspondent at Automotive News Europe. Sam Abuel samid is VP Market Research and heads up Telemetry Insights, Transportation and Mobility Research and Advisory Practice in Detroit. And Bill Russo is Shanghai-based founder and CEO of strategy and investment advisory firm Automobility Limited. Essentially, what the global automotive industry now faces is a repositioning of electrified vehicles in China, an easing of the previous push towards electrification in Europe, and a considerable watering down of the fuel economy targets in the US.

Martin Kahl 1:23

It's important to say that this episode was recorded before the US-Israeli war with Iran, hence the absence of any reference to that or to its obvious implications on oil and fuel prices and availability. Nonetheless, the key points and the longer-term impact of these policy shifts remain, and it's for the automakers and suppliers to address their implications.

Martin Kahl 1:43

In October 2025, China's leadership published the framework for its next five-year plan for formal approval in March 2026 during the National People's Congress. The key elements of the automotive section of that five-year plan, which runs from 2026 to 2030, hinged on a shift in strategic priorities. For the first time in a decade, new energy vehicles, that is, battery electric vehicles, plug-in hybrids, and range-extended electric vehicles, were removed from the official list of strategic industries, marking a transition from heavy government subsidies to a market-driven approach and a broader focus on diverse technological advancements. The five-year plan calls for an emphasis on innovation and smart mobility, notably the integration of artificial intelligence, connectivity, and advanced automotive technologies to strengthen China's position in future mobility solutions.

Martin Kahl 2:34

In December 2025, the Trump administration started the process of dramatically easing fuel economy requirements for new vehicles. The administration's changes to US automotive policy and to corporate average fuel economy or cafe rules included significant reduction in fuel economy targets with a proposal to lower the cafe standards from the previous target of 50.4 miles per gallon to a new industry average target of approximately 34.5 miles per gallon for new light duty vehicles by 2031. The 50.4 MPG Cafe standard was a target set in 2012 by the Obama administration, aiming for vehicle manufacturers to achieve this average fuel efficiency across their fleet of new cars and light trucks by 2025. The December 2025 changes also included a retroactive easing of standards, the removal of enforcement and credit mechanisms, the rollback of clean vehicle incentives and state authority, and an emphasis on affordability and consumer choice, ostensibly to lower the upfront cost of vehicles by up to $1,000.

Martin Kahl 3:36

In Europe, the new European Commission Automotive Package was also published in December 2025, and it called for flexible emissions targets and technological neutrality, replacing the previous 2035 ban on new internal combustion engine vehicles with a 90% reduction in CO2 emissions and the opportunity for a combination of zero and low emission powertrains such as plug-in hybrids and e-fuels alongside offset mechanisms. It also called for a strengthening of EV and battery industry competitiveness and an acceleration in the adoption of clean mobility, including new regulations to speed up the uptake of zero and low emission vehicles, particularly within corporate fleets. I'll be back at the end to wrap up. This is what Peter Sigal, Sam Abul Samid, and Bill Russo had to say about the change of gears in European, US, and Chinese automotive strategies. Peter, Sam, Bill, thanks for joining me on Fisita's Beyond the Car podcast for this discussion about the shifting sands of automotive policy and strategy. Last year, China published its 15th five-year plan for the period 2026 to 2030, which included changes in automotive industry priorities. The US administration announced changes to U.S. automotive policy and cafe fuel economy rules in late 205. And in December 2025, the European Commission published its automotive package. I'd like to start by asking each of you to spend a few minutes just talking about your region's priorities, and then we can explore the global implications together. So, Peter, I'm going to turn to you first for an overview of the European auto industry and priorities following the publication of that automotive package.

Peter Sigal 5:14

Yes, thanks. Thanks, Martin, for having me here. This is a real inflection point for Europe. For the first time since, I would say, since the dieselgate scandal from around 2015 or 16, legislators in Brussels are actually listening to industry more so than perhaps the side of the political aisle that might want a more aggressive environmental approach. So what we what we've seen, and you just mentioned it, is the automotive package that appeared in mid-December that significantly gave automakers a bit of a break on emissions rules. If you recall, the European Union had set a 2035 target in which only zero emission vehicles could be sold, which essentially means 100% electric vehicles. That's been paired back to 90% of the of uh emissions reductions, with the remaining 10% able to be offset through green steel or e-fuels uh biofuels. And that has definitely shifted the calculus for a lot of automakers, um, should that go through as uh as proposed. Um, a few other things in the package that are also significant and that will have implications for automaker strategy. Uh super credits for small electric vehicles. When I say small, we're talking 4.2 meters long, so I believe that's about 16, 17 feet. Uh in Europe, that's the C segment or compact. I believe in the US that would be subcompact, but that's a huge win for automakers like Renault, who most of their sales are um, you know, small cars, compact cars, uh, and increasingly electric cars. So that gives them some policy certainty to say we can build more small EVs, we'll get a super credit, which I believe is 1.3 cars. We can use that to offset larger cars that might have higher emissions for the next 10 years. Uh, and then the the third policy uh uh thing that's really going to have an effect is rules of origin. Um there's a proposal that was leaked from the European Commission that would uh require electric vehicles to be to have 70% of their content by value made in Europe and a lot of key battery components, including the cells made in Europe, to require uh to qualify for government incentives. So that's very contentious. And it's already been delayed for a week. Uh it could be delayed further, it was supposed to come out today, in fact. Um so it depending on how that shakes out, uh, that will also have a huge effect on automaker strategies.

Martin Kahl 7:44

Sam, what's happening in the US?

Sam Abuelsamid 7:46

I I would say arguably the US has had an even bigger inflection point uh than the uh than than Europe and and certainly China. Um because you know, and and there's plenty of blame to go around for everybody on this one, both from the automakers uh in terms of some really bad decisions they made in terms of product planning over the last several years, um, from uh industry or from you know from the the kind of the rest of the supply chain, um, and then from politicians uh all uh playing a part in basically turning the entire industry and the entire uh decarbonization effort upside down. Uh so what were you know what what has happened, you know, starting around about 2019, the auto industry started making moves towards the the legacy auto industry started making moves towards uh large-scale electrification. Um, and they started making huge investments uh both in on the vehicle side as well as building up a supply chain to support uh electrification, uh building you know, building battery factories, doing joint ventures with battery manufacturers, um, you know, and this was all uh in in order to try to meet the expected um emission standards uh by the by the early 2030s. Uh and of course, under the Biden administration, they they continued to ratchet up those standards uh for the latter half of the 2020s and and into the early 2030s. Um and the the industry um I think made some very unrealistic projections as to how many EVs they were actually going to be able to sell in the U.S. market. And I think the the the bigger ch the bigger problem was that they picked the wrong vehicle segments to electrify. They put so much focus on doing battery electric trucks and SUVs uh instead of doing smaller vehicles, you know, where they should have potentially been doing early on things like EREV, extended range EVs for those larger vehicles and putting battery electrics, lower cost battery electrics in and at the the the mid-size to smaller vehicles. Um they they went all in on uh these giant trucks and SUVs that just have not found a market. Uh at the same time, uh you had things like the charging infrastructure, the the companies deploying chart uh public charging infrastructure did a really awful job. Um they the charging was uh erratic, uh it was unreliable, uh, it was expensive. And uh so a lot of people that were early adopters of EVs, particularly non-Tesla EVs, had a very bad experience uh with the charging with the public charging infrastructure. Uh and then of course the whole thing got politicized uh even before 2024. Um the the whole idea of climate change, decarbonization uh got severely politicized, and a significant portion of the U.S. population um took uh a totally irrational view uh against electrification. Um and so what you know and then finally after the election in the last 12 months, we've had essentially almost all of the regulations we've had on fuel economy and emissions in the United States essentially scrapped for uh for the most part. Uh the current administration has said, you know, we're not going to enforce corporate average fuel economy, we're not gonna have any fines for missing emission standards, um, and we're going to scrap the uh intended emission standards for the latter half of the decade and roll things back to about 2020. Um all of that combined has led to um uh plateauing and and certainly a collapse. Oh, and of course, I forgot to mention the scrapping of all the EV incentives at a federal level in the United States. So all that has led to plateauing of EV sales growth uh and obviously a decline in the in the fourth quarter, probably a continuing decline for at least a couple more quarters before it uh probably starts to recover a little bit. And and as we've seen, the automakers and suppliers have had to write off tens of billions of dollars in investments uh over the last um several months.

Martin Kahl 12:05

Bill, you're based in China normally. You're currently in the US, but China is your area of expertise. What does the new five-year plan mean for automakers and suppliers and consumers?

Bill Russo 12:15

Yeah, thanks, Martin. Um well, first of all, you know, I've lived and worked in China since 2004 after spending 17 years in Detroit. Uh I've had the privilege of living and working in both systems, um, the Western automotive industry and China's rapidly evolving mobility ecosystem. My my background spans both auto and tech. And uh and I think the vantage point that I have uh having lived in both worlds allows me to calibrate what I see as differences, not just in policy. I think China is definitely a policy-guided market, but also in the operating logic of the companies and how they think about them their role in shaping uh the industry direction. Uh what we're seeing in today's uh market in China, is in comparing it to the rest of the world, is three regions moving at different speeds and quite recently in different directions. We're seeing three very different industrial paradigms emerging. China has embedded and it's codified in the five-year plans, and each successful five-year plan, and this is, I think, its huge advantage, doesn't depart significantly from the prior. So the the the movements from the you know, 12, 13, 14th five-year plans are not major disruptions. So you have the confidence then in the direction is set uh toward a particular goal that if you invest in something, it's not gonna quickly and abruptly shift as Sam indicated has happened in the United States. Uh, China has embedded automotive into a national system strategy that integrates not just the direction of the hardware of the automotive industry, but also how it connects with the digital infrastructure, the energy infrastructure, because the car as an electrified device is a part of the distributed energy ecosystem. Uh, it's a consumer of energy, it's also an arbitrator of energy because it could be a storage device. Part of the evolution of the policy has incorporated what they call intelligent connected vehicle technologies, where the car, as an AI, as a component of the uh digital aggregate of data that's being collected around the movement is part of the AI problem solving. Uh, the embedding of the core technologies of robotics and AI into the advanced manufacturing systems. It's all shaped by the guiding hand of the uh of the of the five-year plan. Uh the US is reshaping the sector through industrial policy and technology leadership mainly focused on AI. It's taken its emphasis off electrification and focused mainly on where it viewed as core core strengths in the uh AI domain. As we've heard, Europe is recalibrating to balance decarbonization with the competitiveness of its industry. Um, but the once, what I would say was once a very global automotive model built on scale and convergence is fragmenting into regionally optimized ecosystems. And the strategic question that we have to answer now is not who has the best powertrain technology or who has the best hardware technology in general, but who can operate effectively across these fundamentally different systems. If you're intending to compete in a global auto industry, you have to recognize now that we've got these very different ecosystems being built in the different parts of the world. Um, and I'd so you know, reflecting on the what's happened in the last five years. What's happened in the last five years is electric vehicle technology has evolved to a retail consumer demand-based system. It's no longer pushed by policy. The consumers in China have opted in. China has made electric vehicle technology affordable. It prioritized superscaling the supply chains for that. That was initially policy driven, but now it's it's market-led. And China is not ahead because it builds more EVs, it's ahead because it integrates automotive into that national technology system. Again, led by policy guidance. But over time, what we've seen is the industry sectors have embraced the overall objective of energy security, integration of AI into the mobility problem solving, and building out export competitiveness. You know, EVs today are more than 50% of the retail consumer demand. And 7.1 million made in China cars were sold outside of China last year. That's about one out of every five cars that are made in China are actually being sold around the world. So electrification is assumed. The focus is on optimization, the focus is on cost compression and on dominating the supply chains. I think that's what we see happening in China.

Martin Kahl 17:26

Yeah, and I think the the point you made about it being consumer-led rather than policy driven, certainly now, is really interesting because it feels very much like the European approach and the the US approach up till now was also very much policy-driven, and consumers were being either incentivized to go into otherwise expensive electric vehicles, or they were something that wasn't affordable really for consumers. Peter, do you see consumer demand kicking in in Europe in a way that might get us to something like we have in China from what Bill was talking about?

Peter Sigal 18:00

Yeah, I just wanted to go back to what Bill said because a lot of what Bill described, that sort of integration of this complete ecosystem, not just hardware, but connectivity, energy. You read about that a lot in Europe. You hear the think tank papers that say this is how it should be. And it's sound in you know, for various reasons, it is happening in China, and that's it's really quite interesting for you know for me to hear that. Uh as far as consumer demand, I think one of the issues in Europe is that it's spotty and incentive-based. Um, for instance, here in France, we have what they call social leasing, which is if you are uh in a certain income band and it's fairly low, you're able to lease an EV for as low as 140 euros a month. I think it might even be as low as 100 euros a month for a very basic dossier spring. Um, last year, 50,000 cars were registered under that program. Now, is that consumer demand or is that the government pushing EVs on people at a price that's so low they can't resist it? And automakers opt in because they need to make their emissions targets. Do they want to uh be stuck with residual values for after two years of an EV that was leased for 100 euros a month? Probably not, but they do they do need that uh those emissions credits. Um, you know, Germany has gone back and forth on incentives. Um you know, uh, I remember um even some of the smaller countries, the Netherlands, at one point, they had uh made a very generous uh business car incentives for EVs. And I think Tesla alone registered 10,000 cars in one month in the Netherlands. So, yes, I think people in in Europe are getting to the point where that the bill described in in China where they want EVs, um, the choice is getting better. Uh, just this year we're starting to see made in Europe EVs for 20,000, 25,000 euros from Renault, uh, Stillantis, um, Volkswagen is coming out with them. Uh, and and the range is not really an issue anymore. Um, even the charging infrastructures, which was initially a disaster, kind of like what Sam said, is getting to the point where you can travel on a highway or an auto route and find high-speed charging stations available and reliable. Uh, but to answer your question, we're getting there. Um, obviously, some countries like Norway are, you know, they're they're way ahead of the pack, but southern Europe is trailing. Um, you know, Portugal for some reason has made great leaps. Their EV share is over 20%. Italy, I believe they're still on the single digits. We can't even talk about Eastern Europe, where the main cars that people are driving are 15 or 20-year-old diesels or gasoline cars originally sold in Western Europe. So it's very uneven.

Sam Abuelsamid 20:41

Yeah, to what Peter was saying um about uh the and also what Bill was saying about the the integration, overall system integration. You know, in the U.S. we haven't had a lot of integration across communication systems, across vehicles, across charging networks, uh, but also um, you know, what Peter was saying around incentives, you know, it in the US it has been largely incentive driven uh you know to try and drive some growth of EVs. And we certainly saw a lot of this in uh in 2020, uh 20, sorry, we saw a lot of this in 2023 and uh 2024 in the post-IRA period uh when the incentive the federal incentive program was completely revamped and we we all of a sudden had domestic content requirements in order for EVs to qualify. And the interesting thing that happened with that is we suddenly started seeing a lot of EVs being leased uh because of the the loophole in the in the way the rules were set, where um those were counted as commercial vehicle sales, uh and those did not have the domestic content requirements on batteries or local assembly. And so what we started to see was, particularly in some states like Colorado, where they also Had fairly healthy state incentives. We got some crazy low, crazy cheap lease deals where for quite some time you could uh lease a Nissan Leaf for $10 a month. You could get a fiat $500E for literally zero, zero dollars for two years and 10,000 miles a year. Um and they leased a lot of those vehicles. And even in places like California, there were also some not quite that ridiculously cheap, but there were some very cheap lease deals, which is gonna be very interesting to watch as some of those the first of those vehicles start coming off lease later this year. Um you're gonna have a bunch of used EVs coming into the market. And also to what Peter said about uh Eastern Europe, where most people drive older vehicles, uh here in the U.S., the average age of vehicles on the road is almost 13 years old now. Uh the the majority of people in the United States do not ever buy new vehicles. They buy used vehicles. It's almost three to one used vehicle sales to new vehicle sales. And so uh, you know, most people simply cannot afford new vehicles, whether they're gas or electric or diesel. Uh and so as these EVs start coming off lease in the next uh several months, you're gonna have this flood of cheap used EVs with relatively low mileage, which is gonna be a very interesting opportunity for people that perhaps might have thought about buying an EV, but couldn't afford one before, even with the incentives. Uh and now they will be able to get these. And I think that's gonna um it's gonna be interesting to see what happens a couple of years down the road as we're starting to also get some more affordable new EVs coming to market, the latest generation of the Leaf, uh the Chevy Bolt coming back, Forward's Universal EV platform, and uh and there's gonna be others as well. Um, as people buy these used EVs and realize, hey, you know, this is actually really appealing. Uh the charging networks have gotten better from compared to what I said earlier. And uh so now all of a sudden it we may start to see that shift to what we've seen in China with it being with it having become consumer driven. And even without incentives, it could start to become more consumer-driven. It's not gonna, it's not likely to grow anywhere near the pace that it did in China, but we could start seeing growth in EVs as people buy these used EVs, which is actually what my wife and I did last year. We bought a used Kia EV6 for like less than half of what the original sticker price was, and it was you know barely two years old. Um, and those people will experience an EV and decide, yeah, this is something I can live with, something that fits with my lifestyle. And then two, three, four years from now, they may decide to replace that with a more affordable new EV. So there's gonna be a lot of a lot of things to watch over the next several years. Plus, we've got the incoming uh E-Revs uh starting this year uh from Stellantis. Ford has announced their next generation F-150 Lightning is gonna be an EREV. Um Scout is doing EREVs, and and Hyundai has promised EREVs as well. So it's gonna be an interesting mix to watch.

Martin Kahl 25:16

Sam, you mentioned earlier the the tens of billions of dollars of investments that have now been written down. What do these sudden and short-term step changes in strategy mean for this industry, which has for so long relied on stability, reliability, long-term visibility?

Sam Abuelsamid 25:30

Well, the problem for the auto industry is it's a very capital-intensive business. Uh factories are expensive, uh, but it's also expensive to develop the vehicles. And over the last five, six years, we saw huge investments, uh, particularly in battery manufacturing, uh, but also in uh sh transitioning from producing internal combustion engines to producing motors, power electronics. Um and a lot of that, as you said, is now being written having to be written off because there's simply not the demand for that. The industry does depend a lot on stability in terms of regulations because of the lead times in product planning uh and and the expense. So um over the next several years, uh what we are likely to see um is kind of a retrenchment back to internal combustion, some hybridization, uh, some e-revs uh in the short term to try to um beef up the balance sheets, get as much margin out of those vehicles in the in the near term as they can. Stellantis is a perfect example of that. You know, their strategy right now seems to be to put a Hemi or a Hellcat V8 into anything where they can squeeze it in there. Um but um longer term, I think you know, we will start to see a more balanced approach. But but that you know that is a challenge uh because you know now they're going you know for the foreseeable future, they're gonna have to spend money on both the internal combustion side and the electrification side in order to um meet the market demands um until it gets to a point where we start to see electrification grow again.

Martin Kahl 27:10

Bill, I guess for China, the uh the fact that there are these long-term strategic plans in place, each five-year plan is uh creates that visibility that perhaps avoids this sort of sudden step change and the uh the writing off of these investments in the way that we've seen in the US.

Bill Russo 27:28

Yeah, you can rely pretty much that there's going to be continuity from one five-year plan to the next, as I said earlier, uh, that creates confidence for those high asset heavy investments that would be made in building uh a particular type of a product. Um what I've witnessed though over time is the market has, uh I think Sam alluded to this, that that once people incorporate EVs into their lifestyle, it's no longer uh, you know, the all the concerns that you may have over range. Uh, you know, it's interesting because the China policies had targeted uh 20% penetration by 2025 of electric vehicles. Last year in the passenger vehicle category, it was 52%. Uh so they way underestimated how quickly consumers would uh embrace the the uh technology. Uh I would submit that what consumers in China, first of all, they see EVs as aspirational. Uh by the way, it wasn't Chinese companies that made that happen. It was Tesla's entry in 2020, uh, with them initially with Model 3 and then Model Y a year later. Uh they've kind of neglected their product portfolio because they haven't launched a new car in China since 2021. And Chinese companies have launched literally hundreds every year um to compete with them. And making the EV affordable uh got people to buy them. Uh yes, they were incentivized uh to a great extent, but they've weaned themselves out of heavy subsidies. The uh scale is what's driving the cost advantage of the EV. You can buy EVs for at or lower than the price of combustion engine powered vehicles, and they have better technology, and they serve the needs for most of the use cases. The range anxiety falls away once people realize that most of their use cases do not require a car to, you're not going to run to empty. Um and uh what what what's interesting about the policies over time is they initially said that again, 20% by 2025, they've had to adjust that uh in the current five-year plan. Um, they are they did not try to eliminate ice. In fact, by eliminating the combustion engine vehicles, you're actually putting a lot of factories at risk uh because they invested in in a continuation of that technology, which they thought would be alive for a longer period of time. Um, the other thing that's happened is in spite of the early embrace of the range extended and plug-in hybrid vehicles, we've seen a pullback in demand for those types of vehicles because as consumers shop for and incorporate EVs into their lifestyle, they realize that there's very rarely a case where you're gonna run to zero charge. That most of the way we move around, there's always going to be uh availability of charge. Um, you might have to adjust some of your uh use cases uh to, you know, if you're taking a longer trip to know that you're gonna have a facility to charge, but most people have access to that. That's the other part of the thing that China got right, is they invested even before the market pivoted uh to embracing the EV, they invested heavily in building charging infrastructure. Uh that's the thing that I think is lacking in the rest of the world that slows the adoption. But once the adoption starts, you're gonna find that the demand isn't what you think it is. If you make them affordable, people will go there.

Sam Abuelsamid 31:19

Yeah, uh just to respond to what Bill was saying about E-Revs, you know, I think it's it's interesting that you know you're starting to see some pullback on eREVs in uh China, um, which you know uh b because people are realizing, hey, yeah, I don't actually need three, four, five hundred miles of range. Um and that's something that for a lot of Americans they still haven't figured out. I think you know the the other differentiator with with the US um is because we have such a high proportion of very large vehicles. And so the the batteries required for those types of vehicles are just so immense. You know, on GMs, full-size trucks, those batteries weigh up to 3,000 pounds, which is as much as you know, a Honda Civic, which is just insane. Um so I think you know we will still see uh because of the types of vehicles that Americans are buying, we'll probably see eREVs grow for some period of time uh here. Um and and hopefully we'll we'll also see some transition back to more reasonable sized vehicles as well. Uh but uh yeah, and the one other thing that uh that I should mention is even with those um those write downs that we're seeing from the industry, especially on the battery production, um it's not uh they're they're writing down that investment right now, but those battery those battery plants aren't necessarily completely just being scrapped and disappeared. Um you know, they're taking advantage of the fact that there's this crazy demand right now to build AI data centers and the requirement for energy stationary energy storage. And so they're transitioning a lot of that production, at least for now, to building energy storage systems. And so, you know, five, six, eight years from now, if we start to see EV growth start to uh pick up again, that that infrastructure to manufacture batteries will still be there, still be present. And you know, hopefully at that point, um, you know, we can start to transition some of that production capacity back to supporting EV production.

Martin Kahl 33:23

The vehicle size that you mentioned takes us back to a point that Peter made about the provision in the European automotive plan for small vehicles. And there's there's talk now of the development of a new small car category for Europe. And that comes with its own problems, such as you know, the rules of origin, what is what is a small car, um, is actually a very difficult thing to define. Um Peter, just talk a little bit about that and how you how important you think that is and what that could do for investment in European vehicle manufacturing.

Peter Sigal 33:52

Yeah, there were there was a push from led by Renault and Stellantis for what they call the a K-car, you know, the Japanese K-cars, but for Europe, um, and I think even uh uh the administration, the Trump administration, even mentioned that we should be, you know, Americans could drive K cars because, of course, some of the K trucks are brought in uh you know for ranch use and things like that. But um it would be very interesting to see it happen. I think the consensus, however, is shifted towards the proposal in the December, uh, mid-December um European Commission, sort of the omnibus plan, which is to uh two points, freeze regulations for small cars for 10 years to let automakers figure out some way to squeeze their costs on small cars. If you don't, Europe is regulation heavy. For for listeners who don't know that, there's nothing that can't be regulated here and often, you know, it's like regulate it often and early and then keep regulating it. And automakers have complained about this forever. And on a small car where the margins are slim, if you've got to do things like um, you know, data protection or connectivity every couple years or euro NCAP, which are the safety standards, you know, putting in a driver alertness warning in a car that has you know 500 euros of margin, you're losing incentives to build these cars. You know, the affordability issue becomes paramount. So a 10-year freeze on some of these regulations would would help bring prices down. Um, so it and also would be um, you know, it adds certainty to circle back to the uh you know um the sort of the theme, Renault or Stellantis, Ford, whomever one, Toyota, they'll have 10 years, they can focus on on engineering costs out of these cars. Uh and just I wanted to sort of return to one thing that Bill said about desirability of EVs. I think this year we saw the first EV in Europe where people wanted it, not because it was an EV, but because it was a desirable object, and that was the Renault 5. Uh for some reason it triggered a wave of nostalgia, even for people who weren't alive then. And I think Renault uh sold 100,000 of these cars last year at prices from starting at 25,000, but most were well equipped at 33,000 euros or you know, close to 40,000. And I think that's gonna have a huge effect once you have cars um like the original Tesla Model S or you know, Model 3 or the Renault 5 that people want for their sort of a value as a as an object, a status symbol, or just something that says, I'm cool, I drive this car. It happens to be EV, and that's when we'll see the tipping point.

Martin Kahl 36:32

Yeah. Bill, you spoke at our summit back in 2024, and we we did a panel actually on the two-speed system. We talked about China speed, and we talked about the fact that there is China and there's everybody else. It seems from this conversation here that we may now be in a three-speed system. How do automakers, and we've referenced Solantis and Toyota, global automakers, how do they approach this once global industry where it was quite safe to assume that you could build cars in various markets and sell them successfully? Now we're talking about very different products for different regions, I guess.

Bill Russo 37:05

Yeah, we're we're we're recalibrating now into more of a diverging uh set of uh targets uh for the types of products in the part of it is this lack of consistency in region to region and what the end game wants to be. So the consumers are presented with different types of uh products. But the thing about again, China has been very consistent about setting the goal and staying consistent to that target. And the the density of competition in China has created a necessity to always have the freshest and newest product on the market because that it this is this is a technology and a generational shift in consumer preference, and it's being led in large part by affordability and a younger demographic of consumers that embrace technology faster. I mean, we've got a you know, we're in 2026 now. Uh people who are have who are getting their driver's license were born in the smart device era, and tech the technology features of a of a smart device are expected to be in the car. That's what really differentiates the Chinese brands from the global brands. And as Chinese companies expand to other markets, you're gonna see not just an electric vehicle coming, but a vehicle with technology features that you wouldn't expect from companies that you probably have never heard of before, like Xiaomi, which will come to Europe next year. Uh, the competitive variable that matters in a technology race more than any other is velocity, speed. The global platform paradigm and the clock speed of the legacy automotive industry is out of it's out of sync with a market that is increasingly demanding technology differentiation in things other than just how we turn the wheel, right? The way the automotive industry globally has defined its IP moat is around the propulsion technology. Well, when it's an EV, you've got to think of other factors because you pretty much leveled the performance paradigm. Uh, the playing field is if I make an EV, I've got to differentiate it with different types of technologies. Those are going to be more user-centric. You know, the users in a vehicle don't actually see the powertrain, right? The occupant, the cabin becomes the point of differentiation. And you have to be able to update the software-defined features of that cabin in a very quick 18 to 24 month cycle. You're going to be leveraging OTA. You're going to be leveraging, you know, technologies that create differentiation of the car as a user-centric uh device, as a passenger in the car experiences the car, not just the driver. So I think these kinds of features are becoming the competitive battleground. And I think China is a bellwether for what we're likely to see in the rest of the world as the embrace for these new technologies comes on board.

Martin Kahl 40:12

Sam, when the U.S. administration changed its strategy last year, one of the headlines that I saw was that, well, you know, U.S. automakers are never going to be able to sell vehicles outside of the U.S. anymore. Is that is that a genuinely worrying truth?

Sam Abuelsamid 40:28

Yeah, no, I I I believe it is. Uh, you know, certainly, you know, some of the biggest selling uh their highest volume vehicles sold in the U.S. are already products that you can't really sell pretty much anywhere else. I mean, nobody you know outside of you know the Middle East um uh really wants to or is able to buy full-size pickup trucks and SUVs. There's there is simply no market for those vehicles anywhere else but North America. Um so that you know that's already a problem and has been. And you know, when when we hear the administration talk about, you know, why can't we sell F-150s in Japan? It's like, well, have you been to Japan? You you can't drive an F-150 around in most places in Japan. It just doesn't work. Um so uh you know, that problem is actually going to get worse uh if the industry pulls back too much on the move towards software-defined vehicles, towards electrification, towards creating modern vehicle architectures. And um, in fact, uh it with what's going on with trade policy right now, that's going to make it an even bigger challenge for the North American auto industry because the administration has antagonized all of our traditional trading partners and allies to the degree that they don't want to buy American products. And now we're seeing Canada doing deals with China to start bringing in limited numbers of Chinese, particularly low-cost Chinese EVs. And I think it's only a matter of time before we see announcements of one or more Chinese OEMs starting to do production in Canada, probably in Mexico as well, uh, and increasingly isolating the U.S. market.

Peter Sigal 42:08

What are the odds of the Chinese automakers having access to the U.S. market? Because here in Europe, uh we're seeing, I'm starting to see all the things that Bill mentioned about using the cockpit as a differentiator. Um, you know, BYD has made great inroads. Um I am anticipating driving my first Xiaomi model when it comes here. I'm very interested in that because of course they started out in consumer electronics. But what do you what do you guys think of the uh the odds or the likelihood of Chinese automakers getting into the US market without tariffs of you know 100% or 600%, depending on who you listen to?

Bill Russo 42:45

You know, uh the bellwether indicator of market uh shifts are are are the people who sell products to consumers. Uh the thing that's gating the Chinese entry, obviously, is can they get to uh build and sell a car at the at a competitive price? And with tariffs in the way, the answer is no. So they'll their hesitation is is policy, is the US has basically put up a wall. And and there's everywhere else in the world where they can address that they don't have to worry about that wall. Uh the opening uh to Canada, I mean, you know, Canada isn't just interested in selling uh affordable EVs to its market, it's also very concerned about the long-term health of its own automotive industry supply chain. Um, and without having access to modern supply chain technologies, batteries and electronics, where the where China has the scale advantage, their automotive industry supply chain is going to weaken. And they know that. The US, even though both Canada and Mexico are very dependent on the US, Mexico 80% of what it Mexico builds that's automotive related is sold into the United States. But 70% Of what Mexico buys comes from East Asia and increasingly from China. So the Mexican supply chain also knows that if they're going to compete in the future as an automotive industry footprint, it needs the Chinese to invest in Mexico to build up the supply chains of the 21st century product configuration. So both Mexico and Canada are actually dependent on the U.S. market, but need to be less dependent in order to stay viable as supply chain partners for the future of the automotive industry. That's the dilemma. And I think that's the motivation for Canada's move. That's why Mexico has been, even though they have to, you know, bend the knee to the U.S. because they depend on the U.S. demand, they also need to stay competitive longer term. So they will look for Chinese investments to come. And about 15 to 20% of people don't really may not recognize this, but the number one export destination for made in China products in 2025 was Mexico. Over 650,000 products that were sold in Mexico, which is about 20% of its market, were made in China. So these countries are going to be the docking stations for Chinese investment. And yes, they are poised, Chinese companies, to enter the U.S. market when inevitably the policy uh changes.

Sam Abuelsamid 45:33

Yeah, I was I was in Mexico last week on vacation, and you see we saw a lot of Chinese brands, a lot of BYDs, various Gili brands, uh Great Wall Motors, Cherry. Um, the majority of the vehicles we saw on the road were still Japanese and Korean brands, uh, but uh very much so a growing presence of Chinese. And I totally agree with you, Bill, on the supply chain side. You know, with the U.S. trade policies, uh, we've seen a shift uh from General Motors, from Stellantis, from Ford to move more of their production from plants in Canada and Mexico uh into the U.S. over the next several years. And so the particularly in Canada, they they definitely want to protect their supply chain, their uh their their industry infrastructure as much as possible. Um another thing that uh that hasn't gotten talked about very much, I think one of the one of the potential entry points for uh for the Chinese into the U.S. market is going to be through Geely. Geely owns Volvo and Polestar. They have a vastly underutilized factory in Charleston that builds the Polestar 3 and Volvo EX90. Um and they could, you know, they have talked about uh Geely has talked about coming into the U.S. market, and I think that will be their pathway to do that is to build some, probably Zeke, uh, but potentially some of their other brands in Charleston and start selling those into the US market.

Martin Kahl 47:01

I want to um change direction slightly here just to wrap up. We're coming to the end now, but let's accentuate the positive. What are the opportunities that these changes in policy can present to global automakers and suppliers?

Sam Abuelsamid 47:15

Ooh, uh, you know, I think that there's there's a lot of uh interesting potential. Um you know with the I think for particularly for the domestic U.S. industry, they need to take a long, hard look at their long-term strategy. Yeah, in the short term, they are absolutely going to be focusing on selling as many internal combustion vehicles, uh, you know, their highest margin vehicles as they possibly can, but they they can't let go. Uh they they they have to also at the same time focus on really starting to gain some traction with software-defined vehicles, really get their footing on developing modern automotive software. I think Ford is going to be very interesting to watch in 2027 with their Universal EV platform, um, you know, which they basically started from the ground up. They've they've essentially created a new company uh within Ford that is not utilizing almost any existing Ford technology or even legacy Ford staff. Um and I think that may be the pathway forward that we see for other companies as well, assuming that Ford can actually execute on that, which you know they have shown mixed results with that in the past. Um so I think you know, we're they're they're going to have to keep moving forward as much as they can on new generation vehicle technologies in order to be competitive, because even even if the the Chinese don't immediately get a foothold in in the US market, they will eventually. They will find a pathway in here.

Bill Russo 48:48

Yeah, given this regional divergence that we've talked about, uh I'd say I'd say the the winners are gonna be not the most global companies. That the you know if that if the idea of globalization was we're gonna design everything once and sell it everywhere in the world, that paradigm is broken. Uh the winners will not be the most global companies. They will be the companies with the most regionally competent, the global companies that have the highest degree of regional competency. With China functioning as the accelerator for the commercialization and the standard setting, as we discussed earlier, of the next generation of connected and electric vehicle technology. Um you have to really, if that's the 2.0 definition of car, is a connected, electric, more user-centric design, then anticipating the next jump will be to the AI, physical AI autonomous movement. Uh the question is who and how are you going to derive opportunities from participating in what the future of mobility is going to look like? And I'd say right now the battery ecosystem drives opportunity in safety, protection, thermal management, structural uh integration, power electronics, software-enabled systems. These are the growth vectors, if you will, of the development of the next generation of 2.0 and 3.0 automotive technology. But regionalization forces deeper local competencies. You're going to have to adapt the solutions that you build and scale in your home country to the regions that you're hoping to sell into. Uh, the suppliers are going to play a key role, right? The with the EV architecture, with the physical architecture of the next generation of automobile, there's disproportionate upside. That's where the growth is going to be in those technology domains. Um, OEMs will increasingly need to use China as a learning laboratory. You mentioned a few times, Peter, Renault. A lot of the technology that you're seeing come to Europe, it branded as Renault, they're doing in collaboration with their Chinese supply chain. Uh, they couldn't deliver that car at the price point that you're able to achieve without that, because China has scaled those key battery and electronics technologies. But AI capabilities are still going to come from a diverse supply chain pool, which will include the United States. And I think you can't discount Europe's engineering pedigree in the ability to engineer cars to 21st century safety and reliability standards. So I think there's still opportunities there for collaborations across the different regions.

Peter Sigal 51:41

Yeah, I wanted to just build on what Bill said. He beat me to the punch about Renault uh engineering their latest generation of EVs um uh partly in China. And they they they were very uh open about they said we couldn't do it fast enough. We looked to China, we we hired engineers there, they have an engineering center in Shanghai, and they said that allowed us to deliver the new Twingo, which is an electric mini car, in two years from concept-freeze to start of production. So there's, I guess the takeaway from that is there there can be some leakage between regions. Even if Europe has erected tariffs against Chinese EVs, uh, even if China makes it more difficult for the German OAMs to sell cars in China, there is some uh osmosis. There's a porous membrane, I guess I would say. And you know, Europe has always had the you know, the the sort of the savoir-faire, the the panache, the the handling, the style. There's no there's no um coincidence that many Chinese automakers have design centers in Europe. But then China, what we know what China does better, all the things that Bill talked about. I just also want to say one quick thing that's peripheral to the industry, but very important, and also regulation-based, which is I mentioned green steel earlier. If Europe allows automakers to offset regulate um emissions with green steel, it will it will create a mark a lead market for green steel, which has been sort of a pipe dream. I was speaking to someone at a Swedish steelmaker who said the lead times in the steel industry are so long, we can't, we don't have certainty, but if we can get this regulation passed, we will have visibility, you know, and then automakers can put in their orders for green steel. It takes five years and billions of euros to throw out the old, you know, coal-fired blast furnaces and go to electrified ones or even better, ones that are, you know, the process rolling steel using hydrogen. And this is this would be a trigger for you know automakers to uh create a more sustainable supply chain for the steel industry in general, for instance, construction. If the auto industry takes a lead role, then there's a lot of emission savings uh in the steel industry that could be realized through having automotive as a lead industry. And this goes back to regulatory changes.

Martin Kahl 53:58

The introduction and the changes in policy obviously have immediate effects. They have long-term effects as well, and it will be interesting to see how the things that we've been talking about today play out over the next couple of years, and uh maybe we can get together again, get three of you together again to talk about this in the future. But for now, Peter, Bill, Sam, thank you very much for sharing your insight on Ficita's Beyond the Car podcast. We could have talked for hours, but the message is clear. The automotive industry needs certainty. Change is fine, but change of direction after massive investment to meet long-standing long-term targets is counterproductive, as evidenced by what Automotive News calls the $50 billion EV debacle. Tens of billions of dollars of investments in electrification written off as automakers review the realities of consumer demand for EVs, coupled with the Trump administration's rollback of cafe standards and longer-term fleetwide emissions targets in the US and elsewhere in the world.

Martin Kahl 54:55

I won't do the usual summary. This entire episode has been a summary of the changes facing automakers.

Martin Kahl 55:00

What I will do is thank Peter, Sam, and Bill once again for the discussion. You can read Peter's work at autonews.com. You'll find more about Sam's company at telemetryagency.com, and Bill and his colleagues can be found at automobility.io. You can, of course, learn FISITA at FISITA.com. And if you'd like to be involved in this podcast or any other FISITA activities, reach out and get in touch. Thanks to Martyn Strong for production duties as ever. And finally, thank you to you for listening to this episode of FISITA's Beyond the Car podcast.