Major Automotive Global Trends May 2026

Global

A new world order: Chinese manufacturers are starting to purchase existing factories from European automakers

The Chinese auto industry exported over 3.2 million new vehicles in the first quarter of 2026, but now a new phase in its expansion journey is beginning. Chinese automakers are acquiring finished production plants from European automakers to establish production bases in Europe.

In mid-May, the media reported that XPeng Motors was in advanced negotiations with the VW Group to acquire a European production plant it owns. At the same time, the Chinese auto giant BYD confirmed that it was in intensive talks with global corporations, including Stellantis, in order to absorb and utilize unused European production capacity.

The Stellantis Group and the Chinese company Leapmotor, in which Stellantis invested two years ago, also announced a significant deepening of their strategic cooperation. The move includes not only joint production of EVs on Spanish soil but also consideration of transferring full ownership of the group's Madrid manufacturing plant to the joint venture, a step previously considered unprecedented among leading global automakers. Nissan, according to media reports, is also currently in talks with Chery about selling/leasing its European manufacturing plants.

Analysts believe that behind the chain of deals stands a fundamental shift in the strategic balance of power between the European automotive industry, previously seen as a global engineering pioneer, and Chinese automakers, which were previously at a disadvantage.

The move is being driven by the current difficult situation of European car factories and Europe's rigid tariff barriers.

On the one hand, the European car industry is currently in a downward spiral, with official figures from the industrial workers' union IndustriALL revealing that annual vehicle production in Europe has fallen from 16 million vehicles in 2018 to just 11.4 million in 2024, a loss of production of almost 5 million vehicles in just six years.

European manufacturers are facing weak domestic demand in their key target markets, high costs due to the technological transition to EVs, and aggressive and multi-front competition from Chinese car manufacturers, which benefit from economies of scale and efficient supply chains.

Against this background, analysts estimate that large car factories are becoming a heavy financial burden on Europeans, with some factories currently operating at only 30% to 60% capacity. The practical implication is an unused production capacity of millions of vehicles, causing manufacturers to incur permanent annual losses of billions of euros.

In addition, the management of European car manufacturers is faced with powerful and politically connected European labor unions, which are heavily lobbying European decision-makers to prevent factory closures as part of efficiency measures, due to the economic and social costs involved. For example, Volkswagen's attempt to close factories on German soil was met with several rounds of mass strikes, in which about 100,000 workers took part. Therefore, the possibility of selling active European factories to Chinese competitors, including the workforce employed in them, is now emerging.

On the other hand, the operational distress of Europeans is in line with the interests of Chinese car manufacturers. In 2025, Chinese brands held about 9% of all sales in the EU and about 14% of the electric vehicle (EV) segment on the continent. April figures also show that the market share of Chinese-made EVs in Europe has jumped from 19% to 22%. According to forecasts, Chinese brands are expected to sell about 246,000 BEVs in Europe by the end of 2026, a figure reflecting an annual growth rate of 80.3%.

However, the rapid growth is encountering a “Bottleneck” in the form of a protective tariff of up to 35%, imposed by the EU in October 2024 on EVs imported from China. Even after China and the EU reached agreements in January 2026 on a “Price commitment” framework for Chinese manufacturers, the import quota mechanism imposed on them in the EU continues to significantly limit their pricing margin and export flexibility.

At the same time, the EU is currently considering applying strict “Local production content” rules to vehicles, with the French government leading a particularly strong line, requiring that at least 75% of the components of EVs and plug-in vehicles sold in Europe be physically manufactured in Europe.

This move threatens the model of direct export of vehicles from China and forces Chinese automakers to “Operate from within” and produce them within the EU, so that the operational distress of the Europeans opens the door for them.

The model of purchasing existing European automotive plants promises the Chinese significant economic and logistical advantages compared to establishing a new plant “From scratch”. Establishing a new plant usually takes between 3 and 5 years and requires a massive capital investment of over 4 billion euros. In contrast, purchasing and renovating an existing plant allows for active production to begin within just 6 to 12 months. These deals also include the transfer of sophisticated production lines, skilled labor, access to local supplier networks, official production authorizations, and complex environmental permits, which have already been granted.

Meanwhile, the business model differs from case to case, and not all Chinese companies choose to invest huge sums in the purchase of "Heavy" real estate and industrial assets. Some choose a "Lighter" operating model, based on renting production capacity under contract from companies with existing factories (such as Magna Steyr in Graz, Austria), where various XPENG and GAC models are currently manufactured. The model minimizes fixed costs and allows flexibility in a period when market demand is still unstable.

Other manufacturers are integrating "Abandoned" assembly lines of European manufacturers and, at the same time, integrating research and development (R&D) activities in Europe to reduce the time gap between the launch of new models on the Chinese market and their launch in Europe. At the same time, other manufacturers are still toying with the idea of ​​establishing a European factory from scratch.

For European manufacturers, selling or leasing production lines to Chinese companies provides immediate and vital cash flow, allowing them to maintain Thousands of local jobs and free up management resources to focus on core businesses. Either way, analysts estimate that this is just the beginning of a trend that could, in the long term, be another "Nail in the coffin" for the European automotive industry.

Europe

Legislators in Europe aim to abolish tax benefits for ICE fleet vehicles

In May, the European press reported that the European Parliament was advancing a proposal to completely abolish tax breaks for fleets using petrol and diesel vehicles. According to an internal draft of the proposal, which was leaked to the media, EU member states “Will no longer be able to grant tax breaks or financial incentives to petrol-powered company vehicles from 2028.” In addition, the proposal makes the benefits of electric fleet vehicles conditional on the vehicles being manufactured in Europe.

The move is in line with the European Commission’s policy of only providing public funding for zero- or low-emission vehicles manufactured in Europe. Last December, the Commission formulated a new "Automotive package", within which specific targets were set for the member states regarding the rate of transition of the European vehicle fleets to electricity, starting from 2030.

The reduction of fiscal benefits is part of a broad political power struggle that is provoking strong opposition in the industry. The "Automotive package" has not yet received the approval of the Parliament and the Council of the EU. Negotiations are currently underway in Brussels to formulate a majority compromise because in the Council of the Union, a "Qualified majority" is needed to approve the legislation. (That is, to receive approval from at least 15 countries representing at least 65 percent of the population of the Union).

The EU has reached an agreed formula regarding the elimination of import tariffs on US products

On May 20, it was reported in Europe that the EU had reached a provisional agreement on passing a comprehensive law to eliminate import tariffs imposed on goods and products imported from the US. The bill is expected to be put to a final and decisive vote in the European Parliament in mid-June.

The move is a central and integral part of the comprehensive trade agreement, which the parties reached in July last year under pressure from the Trump administration, and is intended to prevent a counter-reaction by the American administration, which threatened to impose higher and more damaging tariffs on European-made products.

Under the terms of the agreement, the EU pledged to fully eliminate import tariffs imposed on goods from American industrial companies. In addition, the EU agreed to grant preferential access and preferential conditions to agricultural products and fruit imported from the US, while the US reduced to "Only" 15% the tariffs it imposed on most products imported to it from the EU, primarily vehicles.

In the ten months it took to develop the initial framework agreement for the draft legislation, the European Parliament and the Council of the EU (the body that officially represents the governments of the EU member states) managed to reach full agreement on a precise wording, which paved the way for the official decision on tariff reductions in Europe.

As part of the final text, "Safeguard measures" were included in the agreement, and it was explicitly stated that if President Trump violates the terms of the agreement or unilaterally imposes new tariffs, the EU will have the full legal right to immediately suspend all tariff preferences granted to the Americans. In addition, an expiry date was included in the agreement, and it was determined that only if legislation is approved in the future, the new agreement, which will extend the understandings, will automatically expire at the end of 2029.

Commentators say the internal agreement on the legislation within EU institutions provides a “Safety net” and respite for the roughly $2 trillion annual trade relationship between Europe and the US. They note that the breakthrough comes just days after President Trump’s official visit to China in May, which failed to yield any significant breakthroughs or tangible trade agreements between the two powers.

The US accounts for almost 20% of the EU’s total exports, but the Trump administration is seeking to reduce the deep US trade deficit with the EU, which stands at more than $200 billion.

The EU Trade Commissioner said after the signing that "The EU is once again proving that it keeps its promises and protects its economic interests. Once the current bill is finally approved, it will make a significant contribution to stability and long-term transatlantic cooperation." However, behind the scenes, opinions were and still are divided. Many European parliamentarians pressed for the inclusion of safeguards and tougher clauses towards the US side, which were ultimately not included in the final text of the agreement. Among other things, it was proposed to include a legal mechanism in the agreement that would condition the European tariff reduction on the US meeting all the terms of the agreement as a preliminary step. This proposal was rejected by the negotiating teams of both sides for fear of delays. In addition, a compromise was reached regarding the expiry date of the agreement, from the end of March 2028 to the end of 2029.

It was also proposed to include a condition in the legal text that states that if the US chooses to leave tariffs in place at a rate exceeding 15% on "Derivative products" of steel and aluminum until the end of 2026, the European Commission would have full legal authority to unilaterally suspend all tariff preferences for imports from the US included in the agreement before the end of that year. However, it was ultimately decided to waive this clause in order not to provide the Trump administration with a reason to cancel the agreement altogether.

The ongoing war in the Gulf keeps accelerating the demand for EVs in Europe

The Iranian arena has not yet stabilized at the time of writing, and oil and gasoline prices at stations around the world are still close to a four-year high. The situation is clearly reflected in the demand for EVs in the EU, which continued to surge in April.

In late May, it was announced that the number of new EVs registered for traffic in the 15 main European markets in April stood at approximately 201,000 units - a sharp increase of 34.1% compared to the same period last year.

In addition to high fuel prices, the surge in demand stemmed from a combination of several accelerating factors, including various government subsidies and incentives and favorable market conditions. It should be noted that in March of this year the growth rate was even higher, at 51.3%.

The consistent growth trend suggests that the pace of EV adoption in Europe is accelerating despite temporary weakness in consumer demand in some regions and fierce and relentless competition from new Chinese brands. A joint statement, issued by several environmental lobby groups in May, said that “The increase in demand for EVs is a direct result of government policies, including the use of measures to increase consumer confidence when purchasing electric cars... including government support for industrial investment, unique leasing models for vulnerable groups, direct purchase subsidies, and targeted reductions in taxes and registration fees... This has a positive environmental and macroeconomic impact, helping to reduce domestic oil consumption in Europe by almost 3 million barrels of fuel.”

However, a regional breakdown of sales data reveals that the penetration and adoption rate of EVs varies significantly between different EU countries. In the first four months of the year, the cumulative number of fully electric vehicles registered in the EU grew by 31.3% to around 740,000 vehicles. However, while Germany, France, and the Scandinavian countries have seen impressive EV penetration, countries such as Poland and Spain, along with countries in Central Europe, are still lagging significantly behind the overall market growth rate.

France demands from Stellantis and Renault: Give absolute preference to local European suppliers

In May, the French government demanded that Stellantis and Renault, in which it has direct holdings, give priority to using local European suppliers in their supply chains. The government wants these manufacturers to prefer purchasing European-made vehicle parts in order to protect local jobs and preserve industrial technology on the continent.

In an interview on May 17, the French economy minister stated that these companies “Must adhere to the principle of giving priority to local production in Europe, and this principle should also be applied to the procurement system from suppliers.” The minister stressed that “They must play their role in favoring the European market, including in the procurement policy with their suppliers... Maintaining industrial sovereignty must be a collective struggle.”

The statement was made against the backdrop of the two companies’ declared intentions to integrate foreign suppliers, mainly Chinese, into their supply chains. Renault is leading a process of targeted component replacement when the future electric Twingo E-Tech, developed in less than 22 months at Renault’s advanced Chinese development center in Shanghai, will be equipped with a Chinese-made electric motor instead of one made by the French company Valeo, its regular supplier.

Valeo, with which Renault has previously collaborated on the development of advanced engines, reported a 3.6 percent drop in its revenue in the first quarter of 2026, to 5.12 billion euros (about $5.96 billion). The final assembly of the vehicle will take place at a factory in Normandy, but the parts will come from China.

In the case of Stellantis, the dependence on China is even higher. The company is not content with only Chinese components and development resources, but is building its future European models on the basis of a platform from its Chinese partner Leapmotor. The company also confirmed that Opel’s future electric recreational vehicle will be developed in collaboration with the Chinese company. This collaboration has allowed it to shorten the development period to less than 24 months. In addition, the two announced that the production of Leapmotor models will be carried out at the European group's factories in Spain.

The French government holds a 15 percent stake in Renault, which gives it direct influence at the board level on purchasing decisions, while the French government investment arm also holds a position in Stellantis. It should also be noted that France's EV incentive program (Eco-Bonus) was designed to undermine the competitive advantage of Chinese vehicles by using a mechanism to calculate carbon emissions throughout the vehicle's life cycle. This method imposes penalties on the Chinese auto industry, which relies heavily on coal-based energy and long-distance shipping.

Both companies are currently trying to postpone the "Decree" or at least soften it due to their deep dependence on China. Renault has previously stated that it will not be able to reach a target price of less than 20,000 euros for the Twingo, using European engine components, while Stellantis cannot achieve the development speed and technological capabilities of the Chinese using its long-standing engineering infrastructure.

USA

New legislative initiative in the US: Imposing an annual fee on EVs to fund road maintenance

The legislators in the US, led by the Republicans, are currently trying to find solutions to close the budget deficit. After canceling most of the incentives for the purchase of new EVs in the US last year, the legislators are now also proposing to impose targeted taxation on them.

In May, the American House of Representatives introduced a new bipartisan bill to impose an annual fee of $130 on EV owners on the grounds of "Road maintenance". According to the proposal, owners of plug-in hybrid vehicles (PHEV) would be charged an annual fee of "Only" $35.

The bill contains a mechanism for gradually increasing the tax: starting in 2029, the annual fee imposed on electric and plug-in hybrid vehicles will increase by $5 each year until it eventually reaches an annual payment ceiling of $150 for EVs and $50 for PHEVs.

The current federal funding, which is directed to the repair and maintenance of the road system in the US, is largely based on the collection of a federal fuel tax when filling up at the pumps. Naturally, EV owners are exempt from it, and this situation, according to the law's proponents, is unfair because the contribution of heavy EVs to road wear and tear is just as great, and perhaps more, than the contribution of gasoline vehicles. It should be noted that a number of states within the US did not wait for federal legislation and have already begun to independently collect fees and payments from owners of electric vehicles for road maintenance.

The new initiative is facing strong opposition from environmental organizations in the US on the grounds that it could lead to cuts in funding and budgets intended for the establishment of public charging infrastructures and would impose unreasonable and discriminatory taxes on owners of electric and hybrid vehicles. It is argued that charging a fixed annual fee of $150 to EVs is unfair and disproportionate because the average annual federal fuel tax paid today by the owner of an average gasoline vehicle is less than $90.

Since 2008, the US has allocated more than $275 billion to fund urgent road repairs, a figure that includes $118 billion poured in as part of the massive infrastructure law passed in 2021.

In the last three decades, Congress has tried several times to pass an agreed federal plan to raise fuel taxes, with the goal of offsetting the soaring infrastructure costs, but all attempts have failed.

In addition to the toll issue, the new bill includes a requirement for the US Department of Transportation (DOT) to formulate and issue stricter safety standards for autonomous vehicles, including autonomous buses and driverless delivery trucks. These standards will apply exclusively to the commercial sector and will not require private passenger vehicles. The bill emphasizes that school buses, which operate autonomously and transport minor students, must be equipped and staffed at all times with a human safety operator.

The AI revolution is not sparing the American auto industry, causing a new wave of layoffs

The wave of efficiency of giant companies following the "Artificial Intelligence revolution" is gradually reaching the automobile industry as well, with the three largest American manufacturers - GM, Ford, and Stellantis - leading the way. In recent years, the three giant manufacturers have already cut more than 20,000 jobs of "White-collar" workers in the US, a figure that represents about 19% of the total office and administrative personnel of these companies. As a result, the total number of employees at these three automakers dropped from a peak of about 102,000 workers in 2022 to just 88,700 workers at the end of last year.

However, this is probably only the beginning, and now we can see the beginning of a new wave of layoffs. Officially, the reasons vary between the different car manufacturers, but it seems that they are all closely and directly related to the rapid technological transformation that the global car industry is undergoing. The entry into the market of software-defined vehicles (SDVs) and the development of driving systems, Autonomous vehicles, and the latest leap in the adoption of Generative AI technology are pushing car manufacturers to reduce and change their personnel structure.

Of Detroit's Big Three, GM is pursuing the most aggressive strategy. The company has already cut about 11,000 "White-collar" jobs in the US in the years 2022-2025, when almost all jobs were eliminated in the last two years. However, according to recent reports, the company has fired between 500 and 600 additional white-collar workers worldwide, mainly in jobs related to its information systems. According to the American media, the main reason for the current round of layoffs is the structural change in the demand for personnel following the integration of AI tools.

Quotations from former employees of the company, along with an analysis of information from the company's official recruiting website, show that GM is actively reducing its traditional information systems teams and consistently expanding the recruitment of talent and experts related to artificial intelligence. At the same time, the company encourages its employees to fully adapt to working with office platforms based on artificial intelligence, which have been embedded within the organization.

The positions most likely to be replaced in the automotive industry, or to be fully automated by artificial intelligence, are secretarial and administrative positions alongside "Routine" office work and positions in the fields of finance, information technology, and traditional programming. However, according to estimates, at the same time as traditional positions in the industry are reduced, many new jobs are expected to be created in developing and technological core areas such as autonomous driving, cybersecurity, and software-based vehicle manufacturing. These may offset some of the cuts and become a major trend that will lead the industry's employment market in the next decade or two.

Currently, these companies have refrained from releasing official and detailed responses regarding the latest wave of layoffs of white-collar workers in the US.

It should be noted that Detroit's "Big Three" still offer many open jobs and, at least at the statement level, they also plan to add thousands of new jobs, including "White-collar" jobs, in North America. According to a recent analysis of the recruiting platforms of the three automakers, there are currently over 2,000 open jobs in the automotive industry in the US; however, nearly 400 jobs are specifically targeted in the fields of artificial intelligence.

South Korea

South Korean delivery data: local manufacturers are losing the EV market share to the Chinese

After years of absolute dominance in the Korean car market, local automakers are now starting to lose market share to Chinese-made vehicles. The most significant shift is occurring in the EV segment, where Chinese-made vehicles have increased their sales volume from less than 4.7% in 2022 to about 40% this year.

According to the Korea Automobile Manufacturers Association, about 25,000 Chinese-made EVs were sold in South Korea in the first quarter of 2026, compared to about 34,000 vehicles in all of 2025. The leading imported brand in the first quarter was Tesla, which has almost all of its vehicles exported to Korea, manufactured at a factory in Shanghai. In April of this year, Tesla delivered more than 10,000 Model Y units in South Korea, a new monthly record for any imported model in the country.

BYD is also gaining momentum in South Korea, and its deliveries since the beginning of 2026 have already exceeded all its deliveries in 2025.

It should be noted that sales in the EV segment accelerated this year due to the increase in the government subsidy for purchasing an EV from about $3,830 to about $4,500. Customers who scrap an old gasoline vehicle when purchasing it receive an additional $700.

However, the South Korean government is currently trying to prevent the "Leakage" of subsidies to foreign manufacturers, and starting in July of this year, foreign and domestic automakers will have to meet seven criteria as a condition for receiving government subsidies, including local production of spare parts, use of a local service and maintenance network, and more. These conditions are expected to limit the penetration of foreign brands into the market.

In addition, in July, the Korean government is expected to launch a package of incentives for local manufacturers as part of a broad tax reform, which is expected to provide incentives to manufacturers of batteries, chips, and EVs, which are manufactured and sold in Korea.

China

Recent data: imported vehicle sales are free-falling

Until a few years ago, imported vehicles, mainly from premium European and American brands, were considered a coveted status symbol among China’s rising middle class. In 2014, a record year, over 1.43 million imported vehicles were sold in China, most of them at premium prices, and the market was characterized by long waiting lists.

However, in recent years, there has been a dramatic decline in the volume of imports and sales of foreign-made vehicles in China. In 2024, about 700,000 imported vehicles were sold there, and in 2025, their sales volume fell to only 480,000. Data for the first quarter of 2026, published in May, show that in the first quarter, total sales of imported vehicles amounted to only about 100,000 vehicles. This, when in March only about 28 thousand vehicles were imported, a monthly drop of 12.6% and a sharp drop of 28.9% compared to the same period last year.

The data show that in parallel with the quantitative decline, there was also a severe impact on the monetary value of vehicle imports: the monthly import value in March amounted to only $ 1.17 billion, an annual decrease of almost 40%.

Beyond the sales crisis, imported brands are suffering from accelerated price erosion, with even premium brands now forced to take part in aggressive price wars and offer deep discounts in order to clear idle stocks. The drop in sales of "Foreign" vehicles is notable against the backdrop of a 53% jump in vehicle exports from China. In March 2026 alone, the volume of vehicle exports from China was 27 times greater than the volume of car imports to it in the same month.

Analysts in China estimate that the main factor behind the consumer revolution is the rapid and progressive development of the new energy vehicle (NEV) sector in China - electric, hybrid, and plug-in. Local brands are now offering models that are precisely tailored to the tastes and requirements of the local audience, including intelligent safety assistance systems, higher-quality passenger compartments, and, above all, aggressive pricing.

The process encompasses all market segments and focuses on distinct "Premium" sectors, where the profit potential is particularly large. Among them, the full-size SUV market, which was previously dominated by imported models from Europe and the US, now includes many premium Chinese models with 6 to 8 seats, a length of over 5 m, and super-powerful engines.

Analysts in China estimate that the volume of imports is expected to continue to gradually decrease in the next three to five years, with the decline gradually slowing down and eventually stabilizing around a level of about 200 thousand units per year and a market share of only 1% to 2% of the total Chinese automobile market.

According to estimates, in the long term, imported cars will retreat completely to narrow niche markets and maintain a symbolic presence through luxurious and expensive "Custom-made models" that appeal to a limited segment of end consumers in China.

India

India's supply chain is being hit by Iran: Small auto parts suppliers are collapsing under the burden of costs

Economic and geopolitical pressures are also seeping into developing countries. In May, the Indian Federation of Small Auto Parts Manufacturers wrote to major automakers, asking them to share the burden of rising energy and raw material costs with smaller players.

In the letter, small local suppliers noted that many of them were currently facing a credit crunch and severe financial pressure that threatened their continued existence, and urged major manufacturers to urgently establish joint mechanisms that would enable long-term supplier sustainability and stability, rather than continuing to rely solely on lowest-price procurement models.

In the letter, automakers were asked to expedite price adjustments with suppliers, significantly shorten payment cycles and credit days, and provide liquidity support to suppliers through advanced financial platforms and tools such as the government’s trade receivables discounting system.

In addition, the appeal noted that since March of this year, the direct production costs of factories, which include consumable lubricants, tools and machinery, industrial electricity tariffs and basic raw materials, have skyrocketed by more than 35% due to the crisis in the Gulf. At the same time, in several industrial areas in India, labor protests have developed on the verge of mass riots in factories. Due to the social unrest, the management of many factories has been forced to give in to workers' demands and agree to drastic wage increases of up to 35%.

In the appeal, the federation noted that unlike large car manufacturers, which enjoy government protection, small and medium-sized suppliers have weak bargaining power with customers, their profit margins are minimal, and their power in the supply chain is negligible. In addition, geopolitical tensions in the Middle East have caused energy prices to rise and disrupted international logistics routes for parts.

The federation warned that cost pressures are completely eroding the operating working capital of companies, pushing up the debt levels of factories to dangerous levels, and are seriously threatening the continuity of spare parts production. In such a situation, the long-term resilience and stability of the entire Indian automobile industry could be undermined.

Japan

The Japanese auto industry: a forecast for a sharp decline in profits due to the war in Iran

Net profits for Japan's seven largest automakers are expected to fall sharply this fiscal year to just half of their all-time highs from a few years ago, according to data released in May.

In the current fiscal year, which ends in March 2027, the combined net profit of the seven largest automakers is expected to be 3.9 trillion yen (about $24.6 billion). That would be a sharp 48% drop from the peak of 7.54 trillion yen in fiscal 2023.

Senior executives and managers at Japanese automakers spoke out on the issue during their May earnings announcements. Suzuki's president said that "Unforeseen circumstances and various extreme events have arisen in the markets one after another." Mitsubishi Motors' president also noted that the operating conditions and supply chains of the Japanese industry "Will continue to be under severe pressure for the foreseeable future."

Analysts expect the Japanese auto industry's overall net profit to recover somewhat by about 13% in fiscal 2026 compared to 2025. However, this growth is mainly driven by one-off factors and accounting and internal moves rather than organic growth in the markets.

The main reason for the decline, which appears in all reports, is the security and political situation in the Persian Gulf, which is causing a sharp increase in raw material costs and eroding automakers' margins. Rising crude oil prices in the markets and the international crisis have led to a broad-based jump in the prices of critical raw materials, including steel, aluminum, naphtha-based industrial plastics, and precious metals used in exhaust systems and electronics.

Beyond material costs, the blockade of the Strait of Hormuz has become a macroeconomic risk for the logistics system of the entire industry. The Middle East region is a strategic and developing growth market for Japanese automakers and also a vital logistics channel for vehicle transportation. Some Japanese manufacturers have already announced that they are forced to change their vehicle transportation routes; however, increasing transportation distances lengthens delivery times and drastically increases transportation costs.

Following the escalation of security tensions in the Middle East, shares of Japanese automakers have recorded continuous declines on the Tokyo Stock Exchange, and investors in the capital market are concerned about the possibility of forced production cuts at factories due to shortages in components. Analysts at major Japanese investment houses estimate that the stock prices of Japanese brands will not be able to record comprehensive and stable price increases until the geopolitical situation in the Middle East completely stabilizes and returns to normal.

Australia

The Australian government's EV subsidy program will be extended in stages

The Australian government has decided to extend the government's EV incentive program. The program, called the Electric Vehicle Discount (ECD), was launched in 2022 and provides tax benefits to employees who take advantage of a gross salary lease arrangement, meaning a salary waiver. According to Australian government data, the incentives led to the purchase of about 64,000 EVs between 2022 and 2025. In addition, about 78,000 plug-in hybrid vehicles were purchased with its assistance, but these do not include eligibility for future incentives.

However, although the market share of EVs of all new car sales in Australia jumped from 2 percent in 2021 to 13.1 percent in 2025, it is still below the global average, which stands at 22%.

The government announced that the program will be extended until the end of March 2027, and until that date, the full exemption from the fringe benefits tax (FBT) on the salary component used for leasing (equivalent to Israel's use value) will be maintained. Since the exemption rate usually reaches 47 percent, this is a saving of thousands of Australian dollars over the lease period.

In the second phase, which will be spread between April 2027 and April 2029, the full exemption will be limited only to electric models, the price of which does not exceed 75 thousand Australian dollars (about 46 thousand euros). This is in order to encourage manufacturers to offer more accessible models. Particularly expensive electric models will receive a partial refund of only 25 percent of the use value. In the third phase, starting in April 2029, all electric models below the "Premium" taxation threshold will receive a fixed discount of 25 percent of the use value.

The stimulus program has recently been in massive demand due to the closure of the Strait of Hormuz, which led to a 17% jump in gasoline prices at stations in Australia compared to February of this year. The industry has expressed concern that the subsidy will be eliminated due to budgetary considerations. However, the government has presented a multi-stage outline that establishes the subsidy in principle but gradually reduces the scope of funding in the coming years.

Israel

Disagreement between government ministries over EV penetration targets by the end of the decade. At the same time, government tenders for EV procurement were canceled

The dispute between government ministries over the future of EVs in Israel and the need to continue to provide incentives for them is intensifying. On one side of the fence is the Ministry of Energy, which continues to push for the preservation of incentives for EVs, mainly the purchase tax benefit and the use value benefit. This is in order to meet the official goals set at the beginning of the decade, according to which the proportion of EV sales of all sales will be approximately 95% by 2030.

It should be noted that in the last two years, in light of the decline in demand for EVs, the penetration percentages have been significantly lower than the original government forecast of the interim targets for EV penetration. So far, the penetration rate this year is less than 12%, while according to the original forecast, it was supposed to range between approximately 25%-28% this year, depending on the scenario.

On the other hand, the Ministry of Finance is opposed to the continuation of tax benefits for EVs. This is as long as the "Mileage tax" mechanism on EVs, which was supposed to come into effect this year (2026) and finance the continuation of the benefits, does not begin to operate in Israel. During May, the Ministry of Finance even announced that all tenders for the purchase of EVs in various segments, which were in effect, were canceled "In order to re-examine the various costs and adapt the various categories to the changing needs of state employees." According to estimates, it is doubtful whether these tenders will be renewed in the foreseeable future, if at all.

In addition, it seems that the Ministry of Transportation is also beginning to "Cool down" its expectations for the penetration of EVs in Israel. In the new government work plan presented during May, in the chapter on the Ministry of Transportation, a new target for the penetration of EVs in Israel by 2030 appears, which is only 50% of total sales that year. This expectation also includes heavy commercial vehicles and buses, whose weight in total annual vehicle sales is considered relatively marginal.

The new work plan also indicated a forecast for a significant slowdown in the deployment of EV charging stations in public spaces. According to the forecast, the number of stations is expected to increase by less than 10% by the end of this year compared to their current number, and most of the new stations will be "Slow" charging stations. It should be noted that the rate of increase in the number of stations between 2024 and 2025 was approximately 18.5%.