The U.S. electric vehicle industry is in a crisis.
The Trump administration has walked back government support for the industry and found itself caught up in a trade war that is putting a strain on both EV consumers and manufacturers. In response, demand is facing a rapid slowdown, and manufacturers are increasingly pulling back. General Motors said in a filing this month that it would take a $1.6 billion hit on its quarterly earnings due to the drop in value of its EV operations. Ford CEO Jim Farley indicated that the company will pivot to focus on partial electrification instead of fully electric models.
But the story differs when you look at the industry globally. Global electric vehicle sales hit a record 2.1 million in September, according to market research firm Rho Motion. That record was only partially driven by U.S. buyers rushing to get electric vehicles before the end of the electric vehicle tax credit.
Also driving the record was strong sales in China, which accounted for about two-thirds of all sales worldwide. September is traditionally referred to as the golden month of auto sales in China, as carmakers tend to launch new models around this time.
China has been the frontrunner of the global EV race for some time now, thanks to consistent support from Beijing in the form of subsidies and other infrastructure incentives. At this point, the country is overproducing electric vehicles and has gone full speed into exports.
Exports of “new energy vehicles,” which include both EVs and plug-in hybrids, surged by 100% in September, according to the China Association of Automobile Manufacturers’ latest data.
Earlier this month, the United Kingdom became the largest foreign market of BYD, which is not only one of China’s but also the world’s leading EV manufacturers.
Europe, on the other hand, was also a big driver behind the global record. EV demand on the continent hit a new high in September. Europe also offers various tax benefits and incentives for its electric vehicle industry, and the European industry’s sales numbers trump those in the United States.
The U.S. is only bound to fall further behind the rest of the world when it comes to the EV race. Much of that is thanks to these two political developments: the end of government subsidies for the electric vehicle industry and the escalating trade war with China.
End of the EV tax credit
The Trump administration’s attack on the electric vehicle industry started on the campaign trail and was finalized with the passing of the One Big Beautiful Bill Act, which eliminated the electric vehicle tax credit. The electric vehicle tax credit expired two weeks ago, delivering a much-feared sledgehammer to the EV industry as it tries to scale in the U.S.
The result has been a slew of manufacturers completely disincentivized from production as the industry braces for a huge drop in demand in the coming months.
Electric vehicles in the U.S. are really expensive. The tax credit was used to help address that and drive demand as it lowered the burden on buyers.
China, on the other hand, is really good at making cheap EVs that still continue to outperform other models. BYD offers EV models that can charge in five minutes and start at around $29,000. The automaker also offers EV models that cost as low as less than $8,000.
Tesla’s most affordable models, which were released earlier this month, start at $36,990 and can supercharge in 15 minutes. The models, which are just stripped-down versions of its existing Model Y and Model 3 cars, are also still more expensive than the more premium models were without the EV tax credit.
The fight over rare earth minerals
Also weighing heavily on the American EV industry is the China-U.S. trade war. China’s biggest bargaining chip, and the Trump administration’s top request, in the trade dispute is Beijing’s hold over the global supply of rare earth minerals.
Rare earth minerals are 17 elements that are crucial to many parts of the tech industry, from smart phones to PCs. They are also crucial to electric vehicle production. China mines 70% of the world’s rare earth minerals, and refines about 90%.
Each escalation of the trade war has put this supply at risk.
China tightened export controls on 12 out of the 17 rare earth minerals last week. Foreign entities are now required to obtain a license from the Chinese government before they can export any product that contains more than 0.1% China-sourced rare earths. Beijing will also start imposing restrictions on lithium batteries, which are used in EVs.
In response, Trump has threatened Beijing with 100% tariffs.
For now, the trade war continues to escalate further with no end in sight. If the growing fears of an even more widespread crackdown on rare earth minerals materialize, it would be the cherry on top for an already struggling American electric vehicle market.
The U.S. and Detroit led the global auto industry as it scaled massively last century, and this position only boosted global American power. This century’s automotive test is electric vehicles, and the U.S. is nowhere near its previous heights in the global auto industry.
“If the U.S. doesn’t transition to new energy vehicles quickly,” auto industry expert Michael Dunne of Dunne Insights told Newsweek last month. “Detroit will cede the global market and be reduced to a niche supplier of gas-powered pickup trucks and SUVs.”