Carjacked: electric vehicle policy under a Delayed Energy Transition scenario

With a shift in domestic government policy around the world towards promoting industrial growth and containing inflation, climate-related policies are coming under ever greater threat. Rising government debt, combined with concerns over supply-chain vulnerabilities and regional de-industrialisation, are emerging as potential major influences on future industrial policies. 

In a recent report, analysts from our Electric Vehicle and Battery Supply Chain Service took a look at what might happen to the global electric vehicle market from a policy perspective under a Delayed Energy Transition (DET) scenario, compared with our base-case scenario. Fill in the form at the top of the page to receive a selection of slides from our report and read on for a brief introduction. 

Our Delayed Energy Transition scenario 

Wood Mackenzie’s DET scenario assumes that these bearish trends will start to dictate government policy on electric vehicle (EV) subsidies, tailpipe emission norms, trade barriers and market pricing from 2025. The resulting strategic pivot away from climate protection towards domestic industrial growth will slow vehicle electrification and delay transport emission reductions worldwide. 

Under our DET scenario, eliminated EV subsidies and eased emission norms will pull back demand growth of battery electric vehicles (BEV) that pose an extremely challenging path to gross profitability for carmakers despite lowering battery prices. Organic BEV growth, however, will continue through carmakers that have well-developed supply chains and those attempting to break into premium price classes. 

The Trump effect 

In North America, where the shifts in policy under the Trump administration have been rapid, the DET assumes the abolition of and restrictions on EV subsidies, the easing of regulatory norms, tariffs on Chinese products and restrictions on joint-venture (JV) partnerships. 

Our scenario assumes that EV subsidies are eliminated in 2025 and reinstated in the form of minor sales tax incentives in 2030. Highly prohibitive rules of origin are added to the 45X tax credit, including on manufacturing equipment from 2025, with a minimum ex-Foreign Entity of Concern (FEoC) content threshold set at 80%. 

Current US tailpipe emissions and fuel economy norms will have their thresholds frozen (mandating a 0% reduction per year) under the DET from 2025 to 2030, while California’s zero emission vehicle mandate will be eliminated by Congressional action and not reversed until 2033. 

US tariffs on Chinese EVs, meanwhile, will remain at 100% until 2033 and tariffs on Chinese batteries will remain at 35% until 2029. Restrictions on JVs between US and Chinese firms will be eased slightly from 2029. 

A milder China effect 

In China, the DET assumes a marginal pullback in EV incentives and a government-led push towards sector consolidation and margin growth. Tax exemptions for EVs are likely to be limited to 2027, while trade-in subsidies will be cut in Q4 2025 and eliminated from 2026. 

The DET sees the Chinese central government push for sectoral consolidation, higher utilisation rates and better margins. The dual credit-scheme multipliers for plug-in electric vehicles (PHEVs) and hybrid electric vehicles (HEVs) are modified to promote their domestic market penetration. The government also promotes the development of hybrid components and after-treatment system businesses to allow domestic suppliers to target Western OEMs. 

Global consequences 

Globally, the DET sees the auto sector pivoting towards PHEVs, partly to amortise costs already expensed during EV platform development and partly to hedge against the risk of tighter emission norms in future. 

The loss of subsidies and the need for cost amortisation leads to revamped product portfolios. Future BEV launches are biased towards larger, high-margin segments, while full-size trucks and sports utility vehicles (SUVs) are redeployed as extended-range EVs. The need to reduce costs, meanwhile, accelerates the adoption of high-compaction lithium iron phosphate (LFP) batteries in Europe and high-voltage mid-nickel batteries in North America. 

Lower EV demand projections, coupled with a general push to improve sector margins, would see large-scale changes to the global cell-making space. The evaporation of private investment in the cell-making sector would cause Western startups to scale back, while pressure from the authorities would force the Chinese cell-making sector to consolidate heavily. 

In the US, under the DET, rules of origin with regards to battery production incentives will see the sector remain nickel-dominant. In Europe however, a relatively welcoming business environment will see Chinese cell-makers scale up faster than domestic competitors and pivot the region towards LFP. 

Of the battery metals impacted by the slowdown in EV sales, nickel will see the greatest drop in EV battery demand due to the outsized impact on the US EV market. Assuming no changes to non-EV battery demand, the nickel market could theoretically move back into a surplus in 2030 in the absence of sufficient curtailments. The slowdown will hinder price recovery for lithium and cobalt as well. 

Learn more 

To find out more about our Delayed Energy Transition scenario, fill in the form on this page to receive a complimentary extract from our slide deck.  

To purchase the full report, which details the vehicle powertrain mix, EV pack sizes and cathode chemistries, EV battery demand, raw materials, cell supply and production, as well as investment opportunities under the DET, please contact your salesperson.