By Jinjoo Lee
American automakers want to boost their profits by selling high-margin gas guzzlers today, all while not falling behind on electric-vehicle technology. It will be difficult to do both.
Look at the list of regulatory changes this year, and it is all but impossible for U.S. automakers to not lean into selling big SUVs and trucks. Car manufacturers no longer face penalties for failing to meet federal fuel-economy standards, which are themselves also being revised to become less stringent. The $7,500 tax credit for buying EVs expired. California no longer has the ability to set its own tailpipe-emissions standards, which were a big driver of EV investment. BloombergNEF estimates that 24% fewer EVs will be sold in the U.S. in the fourth quarter of 2025 compared with a year earlier.
It isn't just the U.S. The European Union, U.K. and Canada are all pulling back or rethinking their ambitious EV mandates.
General Motors, Ford and Stellantis all have said they would shift their sales mix to more gasoline-powered vehicle models, which generate higher profits. They have laid off thousands of workers at EV factories, some of which have been idled. After all, matching production to demand is crucial to a sector that does just-in-time manufacturing. Even one quarter of mismatched production can result in billions of dollars of losses, notes Tom Narayan, equity analyst at RBC Capital Markets.
EVs have been a money pit for U.S. automakers. Ford's EV business for instance racked up operating losses of nearly $13 billion from 2021 to 2024, according to Visible Alpha. Ford said on Tuesday that it expects to take about $19.5 billion in charges that are mainly tied to its EV business. Most of that will be recorded in the fourth quarter.
The shift back to selling more gasoline cars could be quite lucrative for the Detroit 3. In the company's second-quarter earnings call, Ford Chief Executive Jim Farley said easing emissions regulations could be a "multibillion-dollar opportunity over the next two years."
In a report released in August, analysts at TD Cowen estimated that Ford, GM and Stellantis could see an increase in adjusted operating profit of $4 billion, $3 billion and EUR1.4 billion, equivalent to $1.6 billion, over the next few years respectively, from easing emissions regulations.
But even while these automakers are focusing on gas guzzlers, they insist that they aren't getting out of the global EV race. General Motors CEO Mary Barra said at the company's second-quarter earnings call that "profitable electric-vehicle production" continues to be the company's North Star. Ford's Farley has said this year that the company sees Chinese EV companies such as BYD and Geely as competitors.
They have a lot of catching up to do. The Detroit 3 collectively have less than 5% of the global EV market, according to BloombergNEF. The top three EV sellers -- BYD, Geely and Tesla -- together have nearly 40%.
On one level, the companies' EV shift is a reckoning on consumer preferences. Automakers had wrongly bet that Americans would flock to electric versions of bulky cars, which ended up being too expensive for consumers' taste and not practical for the type of long-haul driving that target customers needed to do for things like trucking jobs.
Ford has said it is developing a cheaper, smaller electric pickup model with a 2027 launch date aimed at rivaling Chinese designs. These pickups would go for about $30,000 and be made with 20% fewer parts out of an overhauled factory in Louisville, Ky. GM has also said it is working on making its EVs lighter and more aerodynamic to improve range.
Automakers are trying to make the most out of existing factories. GM's Barra has said the company is able to adjust its manufacturing footprint to changing demand for EVs and gasoline-powered cars. "When you look at first the way that some of our plants where we've added the EV capacity, we have the ability to flex back and forth between ICE and EVs," she said at an earnings call earlier this year. Similarly, Stellantis is sticking with its "multi-energy" platform that can produce internal-combustion-engine cars, hybrids and EVs.
But keeping a smaller EV manufacturing footprint seems to run counter to the idea of producing competitively priced, profit-making EVs. Colin McKerracher, head of clean transport at BloombergNEF, notes that automakers require substantial EV manufacturing volume to get cheaper pricing from battery suppliers. Lack of scale is one reason American automakers are losing money on EVs, McKerracher says.
Manufacturing EVs in the same factory as gasoline vehicles comes at a cost, too. Efficiencies are inevitably lost when EVs are produced along the same assembly line as internal-combustion-engine vehicles, notes John Murphy, managing director at Haig Partners.
Being optimistic about the Detroit 3's EV dominance takes several leaps of faith. First, one has to believe it is possible to manufacture low-cost EVs without scale. Second, that U.S. automakers can somehow keep up with the urgency that Chinese EV makers operate with in a cutthroat, one-directional policy environment. Chinese EV-focused brands roll out a new model every 1.8 years compared with 5.2 years for non-Chinese brands such as Tesla, according to AlixPartners. And third, that Chinese EV companies will stay out of the U.S. market forever.
Might they be better off avoiding EV production entirely? U.S. oil majors are an illustrative case: They bet that the tail of oil and gas demand would be long, even if a peak is inevitable. They sat out of investment in solar and wind, technologies they didn't understand and yielded worse returns. They stuck to their core business, generating a lot of cash to be doled out to investors. So far, their strategy has paid off -- returns have far exceeded those of European majors, who ultimately backtracked on their green-energy ambitions.
Likewise for the Detroit 3, focusing on gasoline and hybrid vehicles might end up being the better bet that doesn't require a big overhaul to their existing business. Gasoline car sales have peaked globally, but a big share of that demand is shifting to full hybrids, which share a similar supply chain and manufacturing process as gasoline cars, according to Eric Anderson, light vehicle powertrain forecasting analyst for S&P Global Mobility. S&P Global Mobility forecasts that global demand for gasoline and full hybrid cars will keep growing through at least 2032.
But the difference with the oil majors is that the rest of the world could switch to predominantly EVs faster than an overall transition away from oil and gas, which would still be necessary for things like aviation, electricity generation, seaborne-shipping and plastics manufacturing.
Right now, U.S. automakers are too comfortable in their traditional lane to worry about that. The risk is that they move too slowly on EVs to ever catch up.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
December 15, 2025 20:00 ET (01:00 GMT)
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