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The automotive industry is undergoing its fastest transformation since the invention of the gasoline car. Policies worldwide are struggling to keep pace. Now US President Trump is adding a new twist by relaxing US fuel economy rules as a way to lower the upfront cost of new cars, reversing a key policy of Joe Biden.
But the global consequences of that decision go deeper than they seem. They will be felt much more acutely in Europe than in the US.
Trump has said the rollback could save buyers about $1,000 on the price of a car. Proponents claim this will make cars more affordable. But the real point is that it protects the profitability of gasoline trucks and SUVs while weakening one of the few regulatory pressures that forced U.S. automakers to expand production of electric vehicles. Trucks and SUVs account for 80 percent of new vehicle sales in the US.
These looser rules give U.S. automakers political cover to delay capital-intensive development of electric vehicles, slowing the country’s push toward electrification. If the US builds fewer electric cars, the country will learn less, costs will fall more slowly, and domestic scale will never be fully achieved.
Scale is the deciding variable, which is why this moment is so important. EVs and batteries operate under the same industrial logic as chip production, with scale determining long-term competitiveness. Historically, Asia has not been dominant in chip production. The US was once the leader, but as investment slowed, Asian foundries expanded, costs fell and supply chains consolidated around the largest producers.
Europe’s strength in chip design also could not stop production from moving abroad, as scale determined the competitive conditions. The same logic now applies to cars. Today, European mastery of combustion engine technology offers little protection when batteries and software determine industrial power.
The same pattern now applies to electric vehicles. Asia already dominates this supply chain. About 85 percent of global lithium-ion cell production capacity is in China. The rest are in South Korea and Japan. Every incremental improvement in battery chemistry and production efficiency pushes them further up the cost curve. The average price of EV batteries has fallen to $99 per kWh this year, below the $100 per kWh threshold considered crucial for price parity with gasoline cars.
That cost difference is now even more important. As Trump’s move gives American automakers room to slow the pace of their EV advance, it creates room for Korean and Chinese automakers, from Hyundai and Kia to BYD, to gain scale in the rest of the world.
While Chinese EVs remain out of the US due to high tariffs, the expansion of Asian EV capacity will seek markets elsewhere and the next largest open market is Europe. According to the International Energy Agency, sales of electric vehicles in Europe will exceed 55 percent of all new vehicles by 2030 under current policies. However, Europe does have leverage: it can choose to shut out ultra-cheap Chinese electric vehicles, as political pressure to act will be high if the local auto industry appears to be in danger.
But even that will not be enough to protect European car manufacturers from fierce competition and margin pressure. Blocking Chinese EVs only shifts the challenge. Korean electric vehicles remain tariff-free, thanks to the EU-South Korea Free Trade Agreement signed in 2010, and directly target Europe’s most profitable segments, not just the low-end ones. Because trade in goods between the EU and Korea is worth more than €120 billion a year, these are considered politically safe imports, making them difficult to target without endangering wider trade alliances. Growing production within Europe means even less room for maneuver.
But the real limitation lies deeper. Europe faces higher energy and labor costs, slower scale and a fragmented market, all of which will continue to put pressure on profitability regardless of how the country deals with Chinese or Korean imports.
Meanwhile, Hyundai, Kia and BYD are not losing their cost advantages simply by building in Europe. They come with global EV scale and tightly integrated supply chains and manufacturing processes already optimized for Asian volumes. These benefits translate into significantly lower costs before European labor comes into play.
Before Trump’s withdrawal, this erosion of European competitiveness in electric vehicles might have occurred gradually over the next decade, mitigated by the expectation that Korean automakers would focus on the huge U.S. market. But by slowing down the EV transition in the US, Trump has just accelerated that future for Europe.
