Major Automotive Global Trends February 2026

Europe

The European Commission will instruct car subsidies to be given according to a “Europe First” policy, starting next year

The European Commission is preparing legislation that would require manufacturers to assemble electric, hybrid, and plug-in vehicles in the EU and to produce at least 70% of their components locally as a condition for receiving government subsidies. The move could pave the way for a formal “Europe First” industrial policy, as recently called for by VW and Stellantis.

According to European media, the EU Commission aims to limit subsidies, public procurement, and government-subsidized leasing schemes only to vehicle models that are produced within the EU.

As a condition for subsidies, at least 70% of components, other than batteries, will reportedly be produced in the EU. The “Source content” will be calculated based on the monetary value of the components. In addition, a number of key battery components will also have to be produced in the EU. The final extent of the local content percentage is still under discussion and may change.

The new rules will be incorporated into the soon-to-be-published "Industrial Accelerator Act" and will include similar legislation in the construction and heavy industry sectors. The legislation will require EU countries to take into account the "Price" of pollutant emissions in public procurement processes and will unofficially constitute another obstacle to manufacturers' ability to conquer the European market.

The legislation is backed by significant lobbying efforts, some of which are overt. Major European automakers have run a public campaign to promote the initiative.

Analysts say the new policy is part of a broader strategy by the European Commission to reduce dependence on China and the US in a number of sectors.

However, not all European carmakers support the policy. BMW, for example, has warned that the regulations could lead to unnecessary costs and bureaucracy. Other carmakers are calling for more flexible rules that would also provide incentives for goods from Britain, Turkey, and key EU trading partners such as Japan.

The European Commission has approved VW's "Price undertaking" for CUPRA electric vehicles imported into Europe from China, exempting them from customs duties

In recent months, the EU has been conducting intensive negotiations with the Chinese government with the aim of converting the tariffs imposed on Chinese EVs imported into Europe into a "Minimum import price" mechanism, alongside import quotas.

Unsurprisingly, the first beneficiary of the policy change is a European-branded vehicle manufactured in China and imported from there into the EU. In February, the European Commission approved the request of the VW Group's Cupra brand to exempt the Tavascan electric crossover, manufactured in China, from import tariffs and to replace the tariffs with a "Minimum import price" and annual import quotas.

Since the imposition of the tariffs in late 2024, this electric model, whose main market is Europe, has been hit with an additional 20.7% tariff, on top of the basic 10% tariff. As a result, the CUPRA brand’s sales and operating profit have fallen by tens of percent in the past year.

According to EU regulations, car manufacturers are allowed to negotiate individual tariff exemptions for specific EV models imported from China. However, this is the first time that the EU has accepted such a commitment from a car manufacturer. As expected, Chinese manufacturers saw the event as a welcome precedent. The Chinese Chamber of Commerce in the EU has been quick to announce that Chinese electric car manufacturers intend to submit applications for a similar procedure and expect the EU to treat Chinese companies equally.

UK

Car manufacturing in the UK dropped in 2025 to the lowest level since 1956

In February, the British car industry presented worrying figures for its performance in 2025. According to the Society of Motor Manufacturers and Traders (SMMT), total private car production in the UK fell to just 717,371 units last year, a drop of 15.5% and the lowest level since 1956. This is a contraction of more than half compared to the peak production recorded in 2016.

According to the British Association, 2025 was “The toughest year in a generation”. It claims that a number of factors led to the crisis, including production disruptions such as the cyber attack suffered by Jaguar-Land Rover, which resulted in the shutdown of its factories for more than a month; the closure of factories such as the Stellantis factory in Luton; The increase in US tariffs on vehicles exported from the UK from 2.5% to 10%, which prompted Jaguar-Land Rover and Aston Martin to reduce exports to the US market, which accounts for around 20% of UK exports, and the transition to EVs, including adjustments to production lines for the next generation of EVs, which caused temporary production delays.

Despite the situation, SMMT remains optimistic and believes that production will grow by 10% as new models enter the market. The UK aims to produce 1.3 million vehicles a year by 2035, a target that will require new manufacturers to enter the country, with Chinese companies being the most likely candidates. Reports indicate that talks are in progress between Jaguar-Land Rover and the Chinese company Chery Automobile for a production collaboration in the UK.

However, the British car industry faces further threats from the EU, including preferential policies and stricter rules of origin (see separate news), which will come into force in 2027 and will require a higher proportion of EU-made components in EVs, to avoid high tariffs.

The SMMT says the EU’s latest policy proposals, which carry the connotation of “Trade prioritization”, pose a “Significant threat” to British industry. The EU not only plans to limit government subsidies for low-emission vehicles to models made in Europe, but also intends to introduce measures requiring companies to prefer purchasing vehicles made in EU member states.

The British association says the impact of this policy will far outweigh the effects of Brexit and will significantly hinder the penetration of British-made cars into the European market, which is undoubtedly a threat to the British economy.

Regarding the EU’s new “Rules of origin”, the British association says that most EVs in cross-border trade between the UK and the EU will struggle to meet this requirement, mainly because the pace of construction of battery manufacturing facilities in the UK and the EU is lagging behind the expectations that underpinned the drafting of the rules.

USA

US tariffs on Graphite for batteries imported from China leaped to more than 160%

In February, the US Department of Commerce recommended imposing a combined tariff of over 160% on imports of graphite from China at a purity level required for battery production. The decision follows an investigation into the pricing practices of Chinese graphite exporters, which concluded that Chinese companies were selling graphite on the US market at prices below the "Fair" price, thanks to government subsidies. In doing so, they created unfair competition for domestic US industries.

Based on the final findings, the US will impose anti-dumping and countervailing duties on materials used in the manufacture of lithium-ion battery anodes, including natural graphite, synthetic graphite, coated and uncoated products, and related mixtures. These materials are key raw materials for EV batteries and energy storage technologies.

Subject to a ruling by the US International Trade Commission (ITC) expected in March 2026, the US plans to impose the following tariffs on graphite imported from China:

•   93.5% anti-dumping duty on AAM imports from certain Chinese companies.

•  Anti-dumping duty on Chinese graphite, at a combined rate of 102.72% from other Chinese companies

• Countervailing duties of approximately 67% on all AAM products manufactured in China. Bottom line, the total tax burden will exceed 160%.

Once the tariffs take effect, they will be reviewed every five years. The automotive battery industry estimates that the new tariffs will significantly increase the cost of battery-grade graphite imported into the US from China, which could negatively impact the EV supply chains and energy storage industries that rely on Chinese graphite.

Official data shows that in 2023, the total amount of active anode materials imported into the US from China was 84.29 million kilograms, worth $347 million, compared with 103.5 million kilograms, worth $380 million in 2022, and 60.98 million kilograms, worth $143.29 million in 2021.

The decision is, of course, supported by American battery raw material companies. Industry executives said: "This is an important step in restoring equal competition to the US anode materials market and will help address ongoing trade distortions, strengthen the domestic manufacturing base for essential battery materials, increase investment in manufacturing, and create advanced, quality manufacturing jobs."

Trump threatens to close a new bridge between the US and Canada

Tensions between the US and its neighbor, Canada, amid tightening trade relations between Canada and China, escalated further in February after President Trump threatened to close a new bridge connecting the US and Canada unless the US owns at least half of it. The threat, if carried out, could negatively affect auto trade between the two countries.

The construction of the new bridge, which costs $6.4 billion, is nearing completion and is intended to connect Detroit in the US with Windsor in Canada. The bridge was supposed to open in early 2026 and serve as a modern and advanced logistics artery for the North American automotive industry's supply chain.

However, President Trump recently wrote on his social media account, “I will not allow this bridge to open unless all American investments are fully refunded and Canada gives America the fairness and respect it deserves… We will begin negotiations with Canada immediately. Given all that the US has done for Canada, we should own at least half of this bridge.”

He cited Canada’s claim to full ownership of the cross-border bridge, the difficulty of American alcoholic beverages reaching Canadian store shelves, Canadian tariffs on American dairy products, and, perhaps most importantly, Canada’s current negotiations to reach a trade agreement with China, particularly on automobiles.

Analysts say the new bridge is a vital lifeline for North America’s integrated auto industry because the Detroit-Windsor border is one of the world’s busiest land trade routes. In 2023, $126 billion worth of goods crossed it, about half of which were cars and auto parts made on both sides of the border by American and Japanese automakers. The old bridge, which connected the two cities, has long been operating beyond its maximum capacity and is suffering from heavy truck traffic.

The new bridge could cut border crossing times by 20 minutes and save the logistics industry more than $2.3 billion over 30 years. The US Department of Homeland Security has also stated that the bridge could ease traffic congestion and shorten travel times, while saving users $12.7 million a year. Preventing the bridge from operating could affect tens of thousands of jobs on both sides of the border.

The Trump administration canceled the regulation that was the cornerstone of climate protection in the US. Reactions in the auto industry vary

The US Environmental Protection Agency (EPA) in February eliminated the "Endangerment Finding" process under pressure from the Trump administration. This process is a cornerstone of climate protection legislation in the US and has, until now, classified greenhouse gas emissions as a threat to public health. The elimination effectively removes the legal basis for many regulations intended to protect the climate in the US, including vehicle emissions standards.

The term "Endangerment Finding" refers to a scientific public risk determination process that was published by the Environmental Protection Agency (EPA) in 2009, during Barack Obama's first term. In this process, the EPA determined that current and projected concentrations of six major greenhouse gases, including carbon dioxide, pose a risk to public health and well-being for present and future generations. The agency also determined that motor vehicles and their engines emit CO2 and other greenhouse gases, which increase the threat of climate change.

As mentioned, the Trump administration has now overturned the scientific findings and claimed in its announcement that "The fundamental undermining of the EPA's climate protections is the single largest deregulation in US history." According to the announcement, "The move will save American taxpayers more than $1.3 trillion." According to the administration, the climate regulations, implemented under the "Endangerment Finding" by the Obama and Biden administrations, are "Illegal, limit consumer choice, and have caused the US trillions of dollars in hidden costs over the past 16 years."

It should be noted that since the beginning of his second term in January 2025, President Trump has worked to slow the expansion of electric mobility in the US and ease the regulation of vehicles with internal combustion engines. The administration claims that it will save US taxpayers $1.3 trillion by eliminating federal regulatory requirements for measuring, reporting, certifying, and complying with greenhouse gas emission standards for motor vehicles. In addition, the administration plans to dismantle the compliance, credit, and reporting programs that supported the regulatory regime for greenhouse gas emissions from vehicles.

An official statement from the EPA and the administration stated: "Climate policies have made new cars more expensive, making them unaffordable for many American families and limiting their ability to escape poverty or obtain essential services... Affordable car ownership is a cornerstone of the American dream and plays a key role in economic mobility and growth in the US."

Reactions to the move in the American auto industry were mixed. American automaker Ford welcomed the move, which it said was intended to "Address the imbalance between current emissions standards and customer choice." The American auto industry lobby group, the Alliance for Automotive Innovation, also stated that the measures "Will fix some of the unachievable emissions regulations enacted under the previous administration. The American auto industry remains focused on preserving vehicle choice for consumers, ensuring the competitiveness of the sector, and continuing the long-term path toward reduced emissions and cleaner vehicles." However, other sources in the US argue that the move will widen the emissions and fuel consumption gaps between the US and Europe and China, increase the Chinese competitive advantage in low-emission vehicle technology, and make it more difficult for them to export vehicles to the world. The three largest manufacturers in the US have already announced that they will write off tens of billions of dollars from their EV operations in the US to comply with the new policy.

Japan

The imposition of tariffs on Japanese vehicles imported into the US wiped out $13.7 billion in profits for Japanese manufacturers

In February, the Nikkei reported that the tariffs imposed by the Trump administration in early 2025 on imports of cars and parts from Japan caused a combined loss of 2.1 trillion yen (about $13.7 billion) in operating profit for Japan's seven largest automakers in the period from April to December 2025.

According to the report, the latest financial statements of Japanese automakers show that the tariffs directly wiped out about 30% of these companies' profits, and that when publishing their latest quarterly reports, all of the major Japanese automakers indicated that the impact of the US tariff policy was much more severe than expected.

In April 2025, the US imposed a significant additional tariff on vehicles imported from Japan. The initial cumulative rate of 27.5% was reduced to 15% in September, but it is still six times higher than the original rate of 2.5%.

Automakers typically pay tariffs when exporting vehicles to their US subsidiaries. If they fail to pass these costs on to their sales prices, their profits are directly affected. As a result, the combined operating profit of the seven largest manufacturers fell by 28% compared to the same period last year, and the financial performance of each of the companies was lower than the previous year.

In addition to the tariffs, the yen's strengthening against the dollar has hurt the seven automakers' operating profit by more than 530 billion yen. Under the dual pressure of the tariffs and the currency's strengthening, Japanese automakers' net profit fell 36% to 3.6 trillion yen. Automakers are now taking emergency measures to improve their performance, including cutting costs and adjusting pricing systems.

China

Forecasts in China: the domestic auto market is expected to decline in 2026 due to economic and regulatory obstacles

The Chinese auto market broke records in 2025 and is still the world’s largest. However, analysts in China and abroad predict that it will go through a “Fight for survival” in 2026, leading to an inevitable price decline. Analysts note that even the most optimistic forecast from the China Passenger Car Association sets a growth target of just 1% for 2026, while the most pessimistic forecasts speak of a decline of up to 7%. Most forecasts place the market in the range of negative growth of 3%-5%.

January sales data supported these views, with retail car sales in China falling to about 679,000 units in the first three weeks of January, a 28% drop compared to the same period last year and a 37% drop compared to the previous month.

In China, it is estimated that the market will be affected this year mainly by two government regulations, which came into effect at the beginning of 2026. The first is the reduction of the purchase tax on "New energy" vehicles, from a full exemption today, to a reduction of only 50%. The second is a change in the scrapping method for owners of polluting vehicles who replace them with a "Green" vehicle. The method has changed from a fixed-amount subsidy to a subsidy as a percentage of the vehicle's price, with a maximum monetary ceiling.

This means that relatively cheap new energy vehicles, which in China cost around ten thousand dollars on average, will be severely affected, while new energy vehicles in the mid-price range of 15-18 thousand dollars will benefit from the reform.

Analysts in China expect the negative impact of tax regulations to be exacerbated by low consumer confidence in the country, combined with a significant decline in property values, leading to a continued contraction in income and wealth of the middle class. In 2024-2025, the income curve of the middle class in China began to trend downward, due to the contraction of the real estate market, resulting in a nearly 50% cut in household car purchase budgets and a general reduction in consumption.

The most pessimistic forecasts for the growth of the Chinese car market are currently coming from international research institutions. Morgan Stanley expects wholesale car sales in China to fall by 5% in 2026, while domestic retail sales could shrink by up to 7%.

The most problematic period is the beginning of the calendar year, and especially the first quarter, which is traditionally considered the slow season for car sales in China. But the company’s analysts expect sales to fall sharply, by as much as 30%-35% quarter-on-quarter, far exceeding the general market expectation of a decline of 20%-25%. The main reason is the early end of vehicle replacement subsidies, which has reduced consumer demand. Many Chinese automakers are still hesitant to provide subsidies at their own expense now to offset the possible purchase tax increase in 2026.

On the other hand, domestic forecasts remain relatively optimistic. As mentioned, the China Passenger Car Association (CPCA) expects domestic retail sales of passenger cars to reach about 24 million units in 2026, an increase of 1% year-on-year. Meanwhile, retail sales of "New energy" vehicles (electric, hybrid, and plug-in) will reach approximately 14.6 million units, an increase of 13%, with a penetration rate of 61%.

The forecast of the China Association of Automobile Manufacturers (CAAM) is also similar, and the association predicts that total vehicle sales in 2026, including export markets, are expected to reach 34.75 million units, a slight increase of 1% year-on-year, of which passenger vehicle sales (including exports) will reach 30.25 million units, a slight increase of 0.5% year-on-year.

Overseas exports remain a strong pillar of support for the Chinese auto industry. It should be noted that the Chinese government recently set an export target of approximately 7 million vehicles in 2026, an increase of approximately 1 million vehicles compared to the peak achieved in 2025.

China presents new regulations for autonomous driving

In August, China’s Ministry of Industry and Information Technology (MIIT) released a draft of new safety requirements for autonomous and highly automated driving systems, which are set to come into effect on July 1, 2027. Specifically, it concerns vehicles operating at levels 3 and 4 of autonomy and is intended to replace existing guidelines from 2024.

While previously automakers and taxi providers followed these guidelines voluntarily, the new, stricter regulations, which will come into effect on July 1, 2027, will be mandatory. The regulations are currently in the draft stage, and companies affected by them can submit their comments until April. The new safety standard is based on the central principle that a vehicle with a level 3 or 4 of autonomy must achieve at least the safety level of a skilled and attentive human driver, and must not create unacceptable risks to users or other bystanders.

One of the key points of the new regulations is the increased safety requirements for vehicles that operate at level 3, that is, without the driver’s intervention and without their continuous supervision, but on fixed routes. In defined situations, the vehicle takes control, but the driver must be able to regain control within a few seconds.

Chinese regulators plan to introduce strict monitoring of the “Takeover ability” of the human driver. The system must use sensors and biometrics to ensure that the driver does not fall asleep or leave the vehicle. The manufacturer must also prove that appropriate training or education has been carried out before the user is allowed to operate the system for the first time.

Level 3 vehicles must be able to perform emergency maneuvers if the driver does not respond within a specified time period. If the driver is physically unable to take control of the vehicle (e.g., due to loss of consciousness), the system must automatically initiate a “Minimum risk maneuver” that allows the vehicle to change lanes and park safely in a location that does not obstruct traffic, while minimizing risks to passengers and other road users. The vehicle must warn other road users by activating the hazard warning lights, and continue to warn the driver audibly, visually, or haptically until a safe condition is reached.

It should be noted that such features are already common in Europe, even in vehicles with simpler assistance systems, at level 2, where they are often called “Emergency Assist”. However, the new regulations in China are less about technological innovation and more about making the requirements legally binding.

For the higher level of autonomy, Level 4, the main requirement is that these vehicles can operate without a human driver in the vehicle. However, remote assistance will be possible, for example, from the headquarters of the autonomous taxi service, Robotaxi. In addition, the regulations state that Level 4 vehicles must give way to police, fire departments, and other emergency services and that communication between the vehicle and the police will be possible.

To clarify the issue of liability in accidents, China intends to require the installation of DSSAD (Data Storage System for Autonomous Driving) in Level 3 and 4 vehicles, similar to the “Black box” in an aircraft. The system records all relevant data before and during an incident, which is essential for regulatory oversight by state authorities.

South Korea

Auto parts export from South Korea to the US dropped 6.7% in 2025 – the first drop in five years

South Korean auto parts exports to the US are expected to decline by 6.7% in 2025, to $7.67 billion, the first annual decline since 2020, according to data released by the Korean Automobile Manufacturers Association in early February. The decline is due to increased US tariffs and the acceleration of domestic production efforts by Korean automakers in the US.

According to the data, in 2021-2024, South Korean exports of auto parts to the US, which is their largest export market, continued to grow gradually from $6.91 billion in 2021 to $8.03 billion in 2022, $8.08 billion in 2023, and $8.22 billion in 2024. However, in 2025, the export value decreased to $7.67 billion, a decrease of about $550 million compared to 2024.

In May 2025, the US imposed a 25% tariff on imported auto parts. On November 1 of the same year, in accordance with the agreement reached between South Korea and the US, the tariff on Korean auto parts was retroactively reduced to 15%.

Analysts who cover the field note that the tariff adjustments have prompted major Korean automakers, led by Hyundai, to increase their purchases of parts within the US. This strategic move has directly led to a decline in Korean parts exports to the US.

The Trump administration recently stated that if the South Korean parliament does not approve the Special Investment Act bill on time, which is intended to implement the bilateral agreement between the US and South Korea, the US will raise the countervailing duties imposed on Korean cars, lumber, and pharmaceuticals back from 15% to 25%.

As part of the trade agreement, South Korea pledged to invest $350 billion in the US, as a condition for the US to reduce tariffs from 25% to 15%. However, as of February 2026, the investment bill is still under review in the South Korean parliament.

India

India prepares to tighten average vehicle emissions regulations

In February, India published the first details of the regulation, which sets minimum fuel consumption and maximum CO2 emission limits for the entire fleet of vehicle models sold by manufacturers in India. The regulation, known as CAFÉ, measures the weighted average of the consumption and emissions of all vehicles produced by a particular manufacturer in that year.

According to publications in India, the new draft regulation, "CAFÉ-3", which will come into force in April 2027, includes several significant innovations that may harm the huge Indian market for small city vehicles with gasoline engines in the future.

The main one is the cancellation of the excess "Green" credits granted to manufacturers of small city vehicles. In other words, each vehicle will be weighted for the purpose of calculating the average as if it were only one vehicle. On the other hand, the regulation defined a new category of plug-in vehicles with an extended-range engine (REEV), which will receive a weighting factor of 3 times, the same as that of EVs. In other words, the weight of each such vehicle on a weighted average will be 3 times greater than that of a regular gasoline vehicle, which will significantly reduce the overall average emissions. The industry warned that the regulation could discourage manufacturers from continuing to produce small, popular gasoline vehicles and reduce the accessibility of private cars for hundreds of millions of low-income people.

According to a new forecast published in India, the growth in wholesale sales of the automotive industry will stabilize at 3%-6% in the fiscal year 2027, after a strong recovery in the second half of 2026

According to a new forecast published in India, domestic passenger vehicle (PV) sales volume is expected to grow by 4%-6% year-on-year in 2026-2027, driven by steady demand momentum.

According to the report, the current financial year was marked by a rapid recovery in the second half of the year, thanks to government support and healthy demand for vehicles from the rural sector.

The report shows that industry sales volumes have been robust in recent months, helped by a VAT rate cut that has awakened “Dormant demand” and a comfortable financing environment. Passenger vehicle wholesale volume is expected to grow by 5%-7% in 2025-26, before moderating to 4%-6% in 2026-27, due to large inventories.

Utility vehicles continue to show stronger demand than other categories, supported by changing consumer preferences and new model launches. The relative share of vehicles with “Alternative propulsion”, mainly electric, is steadily increasing against the backdrop of regulatory encouragement.

According to the forecast, wholesale sales volume of commercial vehicles (CV) is expected to expand by 7%-9% in 2025-26, led by light commercial vehicles and the bus segment. Growth in the segment is supported by demand for replacement and robust infrastructure activity, although price increases, stemming from regulation, could limit stronger growth for trucks. For 2026-2027, the commercial vehicle segment is estimated to grow by 4%-6% overall, with bus volumes expected to outperform with growth of 7%-9%, driven by replacement requirements from government-owned public transport companies.

Israel

Negotiations to increase vehicle imports from India to Israel

During the visit to Israel of Indian Prime Minister Narendra Modi, the possibility of significantly increasing the import of vehicles from India to Israel was discussed, among other things. The Israeli economic press reported this month that several government ministries, including the Ministry of Transportation and the Ministry of Economy, are promoting the issue in various ways.

Among other things, a professional team at the Ministry of Transportation is examining the possibility of recognizing Indian vehicle standards, in addition to the European and North American standards currently recognized in Israel. Such a move would allow vehicles manufactured in India to be imported for export abroad, but they do not necessarily meet all the requirements of the full WVTA standard.

In addition, the Ministry of Economy stated that "There is an effort to import vehicles manufactured in India to Israel." It should be noted that India and Israel are currently in advanced stages of negotiations towards signing a free trade agreement, which could lead to the elimination of existing tariffs on vehicles manufactured in India.

The Indian government itself is currently working to carry out a "Green revolution" in the local automotive industry by providing incentives for the production and purchase of EVs and providing incentives for international manufacturers to produce in India. It should be noted that in January of this year, a new trade agreement was signed between India and the EU, within the framework of which an export quota of approximately 625 thousand vehicles to the EU was set at minimal tariffs. This is a quantity almost six times larger than the current Indian vehicle exports to Europe and is expected to significantly increase the Indians' motivation to produce a vehicle that is suitable for Europe.