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Key takeaways:
Electric vehicle (EV) demand in North America is entering a more complex and uneven phase, with slowing battery electric vehicle (BEV) adoption, rising hybrid penetration and strategic recalibration by automakers reshaping the outlook for original equipment manufacturers (OEMs).
Recent policy shifts, evolving consumer preferences and cost pressures are converging to challenge earlier assumptions about rapid electrification, prompting OEMs to reassess product portfolios, capital allocation and even the role of batteries beyond vehicles.
A key driver behind the changing demand profile is a marked shift in US policy direction, which has weakened the momentum behind full battery EV adoption while increasing flexibility for OEMs.
Changes to EV incentives, infrastructure funding and regulatory frameworks represent “a near complete reversal in direction,” according to Elizabeth Krear, president and chief executive officer of the Center for Automotive Research.
“Policy shifts of this magnitude create greater flexibility for original equipment manufacturers to re-evaluate their product portfolios and better align future investments with actual consumer demand,” Krear said.
This has had a tangible impact on market composition. Hybrid vehicles now account for 14.5% of US market share, while BEVs have fallen to 5.1% after peaking at 7.8% in 2024.
Electrified vehicles as a whole, including hybrids, plug-in hybrids and BEVs, represent around 20% of the market, leaving internal combustion engine (ICE) vehicles with an 80% share.
The shift reflects both policy signals and a more cautious consumer base. “Consumers are looking for better fuel economy without having to commit to [electric vehicle] charging,” Krear said.
The data points to a clear divergence between hybrid and BEV demand trajectories.
“What’s interesting is that the only propulsion that has gained sales momentum is the hybrid. All other propulsion types are down in sales compared to last year,” Krear noted.
For OEMs, this dynamic is reshaping product strategies. Hybrid growth is providing a near-term pathway to decarbonization while preserving flexibility in powertrain development and supply chains.
At the same time, pricing dynamics are influencing material choices and production strategies. Vehicles priced below $60,000 are “more likely to substitute steel for aluminium for fenders and hoods, due in part to advances in high-strength steels,” according to industry sources.
This trend has implications not only for vehicle design but also for upstream supply chains, as hybrid models may sustain demand for conventional materials even as electrification progresses.
Despite weaker BEV momentum, overall vehicle demand in North America remains relatively resilient, although slightly below previous projections.
US light vehicle sales reached around 16 million units in 2025, with forecasts for 2026 converging at approximately 15.7 million units, a modest decline of 300,000 vehicles.
Hybrid growth may help offset some of the expected slowdown. Industry participants suggest that increasing hybrid penetration could keep overall demand broadly stable year on year, rather than driving a sharper decline.
However, longer-term expectations for BEV adoption are being adjusted downward. “Year over year, industry experts are continuing to lower [full battery] EV adoption forecasts, and frankly, I believe even the current projection of 16% market share by 2030 may still be overstated,” Krear said.
This reassessment is forcing OEMs to reconsider the pace and scale of electrification investments across North America.
The shifting demand environment is already translating into strategic changes across the automotive sector, with OEMs rebalancing capital allocation between EVs, hybrids and ICE technologies.
Since 2020, automakers have announced more than $234 billion in investments across North America, with 77% directed toward the United States, 13% to Canada and 9% to Mexico. However, recent trends indicate a growing shift back toward ICE and hybrid platforms.
Honda’s decision to halt North American EV expansion highlights the scale of this recalibration.
“Based on our assessment that EV business viability is not currently assured, we have decided to suspend certain plans, particularly in North America,” said President, chief executive and director of American Honda Motor Fujimura during the company’s earnings call for the fiscal year ended March 31, 2026.
The Japanese automaker cancelled the launch and development of several EV models planned for the region, while pivoting toward hybrids and prioritizing “stable earnings from the ICE business.”
Automakers operating in North America face a combination of steel tariffs, automotive import duties and anti-dumping measures, increasing the cost base for both EV and conventional vehicle production.
The US Department of Commerce slapped Honda with a 13.07% weighted-average dumping margin on hot-rolled coil in April, according to filings with the US Federal Register.
At the same time, uncertainty surrounding the renegotiation of the US-Mexico-Canada Agreement (USMCA) is adding further complexity. Market participants increasingly expect a more fragmented trade environment, with tariffs playing a larger role than under previous agreements.
“Free trade — forget it; there will be tariffs,” Oscar del Cueto, president of American Chamber of Commerce Mexico (AmCham Mexico) and Canadian Pacific Kansas City Mexico, said during a Council of the Americas Conference on May 5.
These dynamics are reinforcing the importance of localization strategies. “From the perspective of tariff measures, we continue to believe that local production remains a meaningful initiative,” Honda’s leadership stated.
For OEMs, this adds another layer to EV investment decisions, particularly where supply chains for batteries, components and raw materials remain globally interconnected.
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As EV demand growth slows and capacity utilization declines, automakers are also rethinking how to deploy battery assets more productively.
Ford’s launch of a dedicated energy storage business illustrates a broader shift across the sector, as OEMs seek to repurpose excess battery capacity and diversify revenue streams.
The move reflects a widening gap between earlier EV assumptions and current market reality, where demand growth has slowed, subsidy support has become less reliable, and large-scale battery investments are now underutilized.
Energy storage offers a more stable and contract-driven demand profile, with projects often backed by long-term agreements and recurring revenue through service and performance guarantees.
In parallel, US electricity demand is rising, driven by data centers, industrial activity and the expansion of renewable energy. This is accelerating the need for battery storage solutions and creating new opportunities for OEMs.
As a result, batteries are increasingly viewed not as vehicle-specific components but as flexible assets within a broader energy ecosystem.
The key question is no longer just how many EVs an automaker can sell, but how effectively it can deploy its battery capacity across the evolving energy market.
Taken together, these trends point to a more nuanced and less linear electrification pathway in North America.
For OEMs, several strategic priorities are emerging:
For North American OEMs, adapting to this evolving demand landscape will be critical to maintaining competitiveness and protecting margins in an increasingly complex market.
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