Western automakers face high costs, tariffs, competition, and strict carbon rules while shifting to EVs

Auto makers across Europe and the United States are dealing with several crises simultaneously. Slimmer profits, workforce reductions, and cost-cutting are spreading. At the same time, the US has started a probe into Honda over safety issues.

Executives and analysts say rising costs, tariffs, strong competition, logistics problems, and tighter rules are colliding with a bumpy shift to EVs.

Major automaker says the pressure looks like a perfect storm. Production bills are climbing, U.S. tariffs remain in place, supply lines are still vulnerable, and policy demands keep tightening. 

Ola Källenius, CEO of Mercedes-Benz Group, put it starkly: “Our industry is experiencing heavy rain, hail, storms, and snow at the same time.” Sigrid de Vries, director general of the European Automobile Manufacturers’ Association, said the move to zero-emission vehicles was already “the biggest transformation for the industry in its history.”

De Vries said that the EU has the world’s toughest and strictest carbon rules. “We want to make this work; that’s very important, but we feel we have our hands tied behind our backs. We cannot deliver on this objective alone. We need the other parts of the equation to be there as well.” 

As part of its climate plan to reach neutrality by 2050, the EU has ordered a 55% cut in CO2 emissions from new vehicles by 2030 versus 2021 levels. From 2035, all new vehicles sold must have zero exhaust emissions, effectively ending sales of new fossil fuel-powered models.

Industry analysts warn of structural disruption and policy strains

Vice President Henner Lehne, of S&P Global Mobility, said the Western auto industry “is clearly undergoing a profound structural disruption.” Automakers have committed large sums toward electrification and digital platforms, but adoption has been slow and volumes are under plan, prompting some to revisit internal-combustion programs once slated for phase-out.

Trade is adding another burden. Competition from Chinese brands remains intense, while the Trump administration’s tariff regime and broader protectionist trends are reshaping global flows. “Globalization is in retreat,” Lehne said.

The US starts a probe into Honda vehicles

In the United States, safety scrutiny is the focus. In 2024, the U.S. auto safety agency examined 1.4 million Honda vehicles after a November 2023 recall of 249,000 vehicles. 

In an August 20 letter, the agency said it is opening another investigation to assess the scope and severity of a possible crankshaft manufacturing defect that can lead to connecting-rod bearing to engine failure. 

To cope with the headwinds, many carmakers are pursuing a strategy focused on value rather than volume, favoring higher-margin models instead of mass-market lines, Transport & Environment said. 

The campaign group says Europe’s sales challenges reflect a transition rather than a crisis across the industry. Companies are also expanding hybrid offerings, shifting some production to cheaper countries, and forming collaborations with Chinese companies.

Germany’s VDA said the country’s car industry will focus on more innovation and present its vision at the IAA Mobility car show, with plans to invest around 320 billion euros in R&D between 2025 and 2029, including 220 billion euros in capital investments.

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