Electrification Strategy
Small EVs offer big production and industrial advantages
A new report argues that smaller, more affordable electric vehicles are central to reducing supply risks, improving competitiveness and restoring growth in global automotive markets.
The global automotive sector finds itself in a precarious position. Markets in Europe, Japan and North America have stagnated, reduced to replacement cycles rather than sources of growth. Emerging economies such as India and the ASEAN states hold promise but remain cost-sensitive. Meanwhile, China has moved from being a latecomer to the fulcrum of electric mobility, dominating production of batteries and setting global benchmarks in cost and scale.
A new report, Small and electric – the international case to move away from combustion SUVs, authored by Pierpaolo Cazzola, Jacob Teter and Matteo Craglia of the European Transport and Energy Research Centre at UC Davis, argues that the answer lies not in larger, more profitable vehicles - but in scaling down. Smaller electric vehicles, the authors contend, are both an industrial and manufacturing opportunity, and a strategic necessity.
For automakers, the decision is not whether to electrify – that is now a given – but what to electrify. Pursuing only large SUVs and premium models may deliver short-term margins, but risks long-term decline.
AMS
China’s asymmetric advantage
Much of the automotive industry’s current dilemma can be traced back to China’s rise. In 2005, China accounted for just 7% of global car sales; by 2024 it represented 28% and was the world’s largest passenger car market. It is also the only major market where EVs are affordable across small and medium segments.
This is not an accident. Beijing’s industrial strategy has combined consumer subsidies, joint venture requirements, public procurement programmes and export-oriented capacity building. Domestic firms such as BYD and CATL have leveraged state backing to dominate both upstream mineral processing and downstream battery manufacturing. Chinese companies control large shares of cobalt mining in the Democratic Republic of Congo and lithium extraction in South America, as well as most of the refining capacity for battery-grade materials.
The effect has been to lock in global dependency. Europe and North America, once export powerhouses, now face declining utilisation of plants and reduced competitiveness. While Chinese firms benefit from economies of scale and vertical integration, incumbents elsewhere are burdened with legacy assets and higher energy costs.
The SUV trap
The other force reshaping the industry is the steady shift towards larger and heavier vehicles. Automakers in North America have long relied on SUVs and pick-ups, protected by tariffs and lenient Corporate Average Fuel Economy (CAFE) rules. In Europe and Japan, small and medium cars remain more prevalent, but the global trend is unmistakable.
This expansion in vehicle size has increased average purchase prices across markets. As the UC Davis report notes, rising costs have led to stagnant new sales and an ageing fleet in developed economies. Structurally speaking, the higher weight and taller front profiles of SUVs also raise safety risks, particularly for pedestrians and occupants of smaller vehicles. Research cited in the report from the VIAS institute, (formerly the Belgian Road Safety Institute) shows that a car 300 kg heavier than average makes fatalities for the opposing driver in a crash 75% more likely.
From an energy perspective, the SUV boom undermines decarbonisation. Larger footprints and heavier batteries require more materials and consume more electricity per kilometre, adding pressure to grids already strained by the energy transition.
Why small EVs matter
The authors argue that small EVs can mitigate these risks and create new industrial opportunities. Their advantages are not merely incremental but systemic.
Affordability is the first. Smaller EVs reduce entry costs for consumers, encouraging faster turnover of the fleet and higher adoption in middle- and low-income markets. The potential for scale in such segments could drive cost reductions across the value chain, including batteries and power electronics.
Material demand is another. Compact EVs require fewer critical minerals and lighter battery packs, helping to ease geopolitical risks tied to lithium, nickel and cobalt. A faster replacement cycle of small vehicles could also accelerate the accumulation of recyclable battery materials, supporting circularity.
Energy use per kilometre is substantially lower in small EVs than in either large EVs or SUVs, reducing the burden on power infrastructure and making integration with renewables easier. Road safety also improves: smaller vehicles are less likely to inflict disproportionate harm in collisions with pedestrians or other cars - a motivation for consumer demand that could ease the production burden of automakers shuffling to predict production cycles. For manufacturers, the industrial logic is compelling.
Mass production of affordable EVs can de-risk investment in gigafactories and assembly plants, attract public support and reduce over-reliance on premium models. The report is blunt in its assessment: without a shift to small EVs, legacy automakers risk losing market share, industrial relevance and policy support.
Small EVs may not promise the same unit profitability, but they promise something more valuable: scale, resilience and legitimacy in the eyes of policymakers and consumers.
AMS
Policy levers for change
Governments, the report suggests, hold powerful levers to accelerate this shift. Differentiated taxation based on vehicle weight, footprint and emissions could tilt markets away from SUVs, while post-production; parking charges, leasing subsidies and targeted incentives for smaller models would improve their economics. Affordable charging infrastructure - a point that automotive OEMs have oft-cited as down-stream variables influencing their own production success - especially in cities and low-income areas, is essential to make EVs with smaller batteries viable.
On the automotive supply chain side, the diversification of supply chains is equally urgent. Conditionality on public subsidies, joint ventures with technology transfer, and even temporary tariffs are recommended to reduce dependency on Chinese suppliers, while policymakers are also urged to support research in battery chemistry diversification, digital production techniques and recycling technologies.
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The study highlights that governments in the United States, European Union and India have already deployed industrial strategies aimed at capturing clean-tech capacity, from the Inflation Reduction Act to the Green Deal Industrial Plan. Yet, the report argues, without an emphasis on smaller EVs, these measures risk reinforcing the premium bias that has already hindered adoption.
Industrial and geopolitical stakes
The implications for manufacturers are profound. In Europe, declining utilisation of assembly plants and pressure from high energy costs make smaller EVs an attractive path to stabilise output. In the United States, tariffs may shield producers temporarily, but they do not resolve competitiveness gaps in costs and scale. For emerging economies, small EVs offer a route to leapfrog the combustion era and avoid dependency on second-hand imports of inefficient SUVs.
The geopolitical dimension cannot be ignored. The concentration of battery production and mineral processing in China has already been identified as a national security concern in the West. A diversified, globally distributed supply chain for small EVs could mitigate these risks, while also reducing volatility in material markets.
For automakers, the decision is not whether to electrify – that is now a given – but what to electrify. Pursuing only large SUVs and premium models may deliver short-term margins, but risks long-term decline. Small EVs may not promise the same unit profitability, but they promise something more valuable: scale, resilience and legitimacy in the eyes of policymakers and consumers.
Counter-intuition and counter-competition: Downsizing to upscale EV competitiveness
The UC Davis report is unequivocal: smaller EVs are a strategic necessity, not a niche. They are vital to decarbonisation, affordability and competitiveness. They offer a way to reconcile industrial strategy with consumer demand and environmental goals.
The report's lesson for automotive manufacturers is clear. The industry’s future will not be secured by chasing margins in ever-larger vehicles, but by embracing scale in smaller ones. In a time of unwavering geopolitical risk and manufacturing transformation, being small may in fact, prove to be the biggest advantage of all.
