EV manufacturing at a crossroads: The policy shifts transforming the global industry

China is the world’s largest vehicle manufacturing country, especially for EVs, a segment in which its domestic players, especially BYD, Geely and others lead the world. For a while it seemed as though the rest of the world had belatedly entered the race to catch up with China, but the major policy reversals in the US in the last year or so have stalled the EV manufacturing sector’s growth to put it mildly. In Japan, policy makers – arguably at the behest of the major vehicle companies there – focus their attention on HEVs, with BEVs remaining a marginal technology even now. Indian and Korean manufacturers are hedging their bets with ICE, hybrid and EV technology.

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Meanwhile in Europe, EU policy is still driving the market towards EVs, although consumer reluctance to adopt EVs has meant that, until recently, EV production volumes have been disappointing; however, rising fuel prices as a result of the Middle East conflict have begun to push up demand for EVs. Moreover, with more EVs coming to market, and some manufacturers offering close to or actual price parity between EVs and ICE or hybrid models, the EV market may well see the desired take-up rates achieved.

US policy reversal stalls EV momentum

The interesting issue for AMS readers which arises is what does this mean for vehicle manufacturing, what will be made where, in what volumes; in turn what does this mean for equipment suppliers and supporting sectors, for both vehicle and battery production? Regarding the latter, we have seen numerous battery factory plans cancelled or scaled back in North America especially, but also in Europe. Honda, when it announced it was cancelling its 0 Series EVs in the US, said it would repurpose some of its planned battery plants to make smaller batteries for hybrids but also adapt the intended battery factories to make batteries for the energy storage sector (ESS). Ford has announced it will do something similar with planned battery plants as it reviews, i.e. cuts back on its EV manufacturing plants in the US. Hyundai, meanwhile, has changed the plans for its new Metaplant in Georgia; this was due to be a 100% EV plant, but the factory has been redesigned to accommodate production of hybrids and ICE models as well.

However, it is in Europe where the manufacturing landscape is arguably in the greatest flux. Several manufacturers had announced EV only programmes, and EV-only factories, only to have to revise these plans in the last year or two. New vehicle platforms – such as Volkswagen’s SSP – which were intended to be EV-only – will be modified to allow ICE or hybrid powertrains to be fitted alongside EV powertrains. And at the same time, ACC – the Stellantis-Mercedes joint venture in battery cells – has cut its European factories plans from four sites to just one. Additional demand beyond that which this one (French) factory can supply will now come from independent suppliers. The likes of LG, Samsung and SK On from Korea, and CATL, BYD, Gotion and others from China will dominate the battery cell sector, from European plants mainly but also from China in the case of BYD.

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Europe's 'Made in EU' mandate

In Europe, an additional complication has arisen this year, the full implications of which have yet to be fully worked through or understood; this is the Industry Accelerator Act (IAA), also known as the Made in Europe (MIE) policy. This plan, announced by the European Commission at the start of 2026, threatens to upend some of the industry’s best and longest laid plans, as well as – from a slightly parochial view it must be said to AMS’ global audience – throw a real spanner in the workings of the UK-EU trade agreement,

Quite when the IAA/MIE policy would be fully implemented is not clear but late 2027 or early 2028 appears likely; it is also not clear whether the plans will be accepted as they are currently set out or if certain exemptions will be made. From a vehicle production point of view the key issue is that – if the plans are implemented as currently set out – EVs will only be able to benefit from state support (i.e. purchase incentives) or be included in the corporate fleet’s “greening” calculations if the vehicles and indeed batteries themselves are manufactured inside the EU. EVs or batteries made in the UK, Turkey, Korea and Japan – countries with which the EU has either a customs union (as in Turkey) or a free trade agreement (UK, Japan and Korea) would find it difficult to sell EVs in the EU; vehicles made outside the EU would not face tariffs, provided they met rules of origin requirements, but for major customer segments, e.g. the corporate fleet and rental sectors, any EVs made outside the EU would not qualify for inclusion in net zero or similar calculations, nor be eligible for government-supported sales incentive schemes.

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The UK – and the other countries mentioned above – are engaged in discussions with the European Commission to try to be treated as equivalent to EU manufacturing and therefore qualify for inclusion within the IAA/MIE’s provisions but this is far from guaranteed. As a commentator at a recent London conference said: for the UK to be fully included within the MIE/IAA will require some serious heavy political lifting and the same will apply to Japan, Korea and Turkey.

Chinese OEMs pick up Europe’s spare production capacity

With all this uncertainty, decision makers looking at where to add EV production for Europe will either delay decisions or naturally increasingly look to EU locations. Depending on the sales destination mix for EVs made in the UK, Turkey and indeed Morocco which also has a free trade deal with the EU, the viability of EV programmes – and therefore EV factories – in these countries would be in doubt if they lost fully open access to the EU. The IAA/MIE provisions moreover explain why Geely is reportedly close to agreeing to take over an assembly hall at Ford Valencia so it can make vehicles inside the EU and why Stellantis will bring more Leapmotor production to its factories in Spain as well. BYD – and other Chinese vehicle companies – are being linked with plans to utilise spare capacity at factories in Italy, France and potential Germany, to get around the IAA/MIE provisions. Certainly the next few months have the potential to see a major transformation in the European EV manufacturing landscape; as the Chinese are reputedly wont to say – may you live in interesting times.

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