The great EV retreat continues as more and more automakers are pulling investments out of the battery race in favor of classic petroleum. Its latest victim? Subaru.
The maker of damn near every car in Vermont plans to scale back its investments in EVs in favor of both hybrids and combustion-powered cars due to shrinking demand and America’s brutal automotive tariffs.
The EV and transportation news roundup you know and love will hit your inbox each morning at 8 a.m. EST
Welcome back to Critical Materials, your daily roundup for all things electric and tech in the automotive space. Also on deck: U.S. tariffs have cost Japanese automakers nearly $10 billion in six months and China’s “used” zero-mile EVs are crushing global expansion. Let’s jump in.
30%: Subaru Pivots From EVs To Hybrids
Photo by: Subaru
Subaru’s $9.7 billion electrification plan has officially been derailed. The automaker’s president confirmed during an earnings call on Monday that it will imminently transition its billions from an investment in electrification into a broader “growth investment” for the company.
That wording might seem ambiguous—and it is—but the message was crystal clear: EVs are out, and hybrids are in.
Nikkei spills the details:
“Given the increasing demand for hybrids and the reappraisal of internal combustion engines, it is appropriate to delay the timing of full-scale EV mass production investment,” President Atsushi Osaki said Monday at an earnings briefing.
The Japanese automaker had announced plans to invest 1.5 trillion yen in electrification by 2030. It is not changing the amount, but the company now refers to it as a growth investment.
With 300 billion yen already invested, the remaining 1.2 trillion yen will be reviewed. Subaru did not give a breakdown for the remaining investments.
Subaru has about 80% of the money that it pledged to BEVs throughout 2030 still available. That remaining $7.8 billion is up in the air for now.
The official stance is that Subaru isn’t giving up on battery power as a whole. The company will soon have three EVs on the U.S. market that it co-developed with Toyota: the Solterra, Trailseeker and Uncharted.
The fate of Subaru’s self-developed vehicles, however, is less clear. Nikkei reports Subaru is considering delaying its four in-house EVs beyond 2028, which further tracks with the automaker shifting its focus from electric to electrified—namely, hybrids.
“We will expand our product lineup to meet diverse needs,” added Osaki.
Part of the reason Subaru has gone down this path is due to the tariffs in the U.S. Around 80% of Subaru’s sales are to the U.S. And half of those vehicles are built in Japan, meaning those imports are subject to 15% tariffs. In fact, Subaru says that the tariffs will ding its annual profits to the tune of $1.3 billion, contributing to a year-over-year decline of 53%.
60%: Japanese Carmakers Have Been Crushed By Tariffs
Photo by: Honda
Speaking of tariffs, they absolutely crushed Japanese automakers this year. Japan’s top seven automakers saw U.S. tariffs eat up nearly $9.75 billion in operating profits between April and September, Nikkei Asia reports, a reminder that global trade isn’t for the faint of heart.
The full 27.5% tariffs were imposed on goods from Japan for the majority of the first half of the fiscal year. Although they were reduced to 15% in September after trade negotiations, the damage was already done. Combined with exchange-rate headaches, it resulted in a generally brutal year for the automotive market—outside of the bump stimulated by the end of the EV tax credit.
Subaru and Mazda were among the hardest hit by the tariffs. Mazda says that tariffs cut into its profits by about $630 million, leading to its first projected loss in five years. Subaru is getting slammed too, as detailed above.
Nissan and Mitsubishi also posted net losses in the April-to-September period, with Nissan saying it would’ve broken even had it not been for the new trade policy. Toyota, fueled by the sale of hybrids globally, still posted a profit but said tariffs will cost it around $9.4 billion for the year.
Honda Motor Executive Vice President Noriya Kaihara called the tariffs “the new normal” for the industry during a press briefing last week. Kaihara said that automakers could “expect [it] to continue for the foreseeable future.”
The New York Times reported on the state of the industry as automakers posted their half-year fiscal statement. It warned that a cut in tariffs won’t make things all hunky-dory for Japan’s auto industry.
Japanese auto companies have publicly expressed gratitude for the government’s negotiation of a better rate, but many industry executives have privately complained that even a 15 percent tariff erodes already thin profit margins for manufacturers. They are concerned that the tariffs may stick even beyond the current U.S. administration.
The United States is the largest market for Japanese carmakers. Despite building extensive American manufacturing capacity, a large share of the cars sold there—along with their parts—are still sourced from Japan, constituting its largest U.S. export.
In total, Japan is expected to have a year-ending tariff hit of $16.2 billion for automakers, according to calculations by Nikkei Asia. That doesn’t take into account losses that automakers like Toyota are absorbing to protect its suppliers that can’t afford the losses directly.
90%: China’s ‘Used’ EVs Are Threatening Global Expansion
Photo by: Motor1.com
When China got behind the EV movement, it went full-throttle. It eventually became a full-on electric car powerhouse and spawned more than 100 EV automakers. That quickly led to over saturation. Eventually, those surplus cars started to make their way out of the country as zero mile “used” vehicles. Let me explain.
It turns out that exporting new vehicles out of China isn’t the easiest (or cheapest) thing to do. There’s licensure, government approval, warranty guarantees and more. But used cars? That’s much easier, which is why high-ranking folks in the know started using this little loophole to register brand new cars as second-hand and ship them out of the country. They were also under pressure to meet sales quotas, hence the common practice of booking a car as sold, then selling it again.
Approximately 80% of exports from China now fall into this category, according to Caixin Global. That’s why the used car export business from China swelled from 15,000 in 2021 and is expected to surpass half a million units this year.
Needless to say, regulators have caught on. And its caused quite a bit of turbulence in the industry since gaining media attention, effectively forcing regulators to draft policies to close the loopholes. Government officials believe that these changes will help to stop distorted sales data and calm the reputation damage endured by Chinese automakers who stand accused of the tactic.
Caixin Global reports on what’s being done and the gotchas still on the table:
The unused used-car loophole has taken on greater significance since the Ministry of Commerce and other government departments announced on Sept. 26 that pure electric passenger vehicles will from Jan. 1 be subject to the same licensing export regime as internal combustion engine vehicles and plug-in and extended-range hybrids. The policy aims to curb low-end models without after-sales support, curtail toxic competition and encourage automakers to build service networks overseas.
However, some have expressed concern that the rule change doesn’t explicitly cover used cars. “If we only regulate new cars and not zero-mileage used cars, a large number of new cars will still be exported in the guise of used cars, eventually compromising the effectiveness of the policy,” a used-car exporter told Caixin.
China’s gray-market boom is exposing the country’s biggest core problem with its automotive industry: too many factories, too many brands and not enough buyers. Local government subsidization is still funding production while demand cools, resulting in cars rolling off the line with nowhere to go. Sure, it keeps the numbers up, but it risks blowing the country’s credibility in the process.
Meanwhile, the country’s biggest brands are aiming to expand into new markets while traders are cashing in before the lucrative loophole closes. Beijing clearly isn’t tolerating the chaos any longer, either, and the creative marketing of “used” EVs could soon be over.
Industry trade groups point back to the mistakes that the Chinese motorcycle industry made in the ’90s. When China undercut Japanese competitors with cheaper bikes, they sacrificed on quality and support, leading to an eventual collapse of the industry.
As one person close to the matter told Caixin: “Regulators don’t want the EV industry to repeat that mistake.”
100%: What Happens To Domestic EVs If Competition Is Stifled?
Photo by: YouTube
As the old proverb goes: Necessity is the mother of invention. Competition has historically driven that necessity. But as the U.S. puts protectionist measure in place like tariffs, that competition artificially disappears.
Japan’s latest industry finances shows that it makes exporting cars to the U.S.—especially EVs—at competitive rates untenable. Now, with the EV tax credit gone, electric car sales are expected to plummet in the States over the next several quarters. This is one of the reasons that automakers like Subaru are rethinking their EV plans.
So that makes me think: What might happen to the EV trade in the U.S. if there’s less of an incentive to be competitive? Do you see automakers continuing to innovate, or might things fall stale in exchange for more affordable prices? Let me know your crystal ball predictions in the comments.
