Geopolitics and shifting investment plans reshape 2026 automotive strategy

2025 was a challenging year for the auto industry; 2026 is unlikely to be any different with many of last year’s challenges intensifying. The geopolitical situation across the world makes long term planning increasingly difficult. Car companies and suppliers alike will need to display agility and flexibility to a far greater extent than in the past. And they will need to do this while financial pressures on some suppliers are such that investment is being squeezed, or cancelled, and some analysts suggest many suppliers will fail without significant support from their customers, the vehicle companies.

There are so many critical issues facing the sector that deciding on the most important and ranking them is all but impossible. This comment column looks at those which – as of early January 2026 – appear to be the most pressing. The brooding presence of China is clear. A second column will look at other key issues which have, arguably, a longer horizon in view.

Geopolitical pressure intensifies

So much is going at present, and while it may be difficult to directly link issues like the continuing Ukraine conflict, the US’ interest in taking over Greenland and the US’ regime change policy for Venezuela to the auto sector, they will impact the broader investment climate, and indeed consumer confidence. The US’ control over Venezuelan oil supplies may well lead to falls in the oil price and indirectly at least give a continued boost to the ICE and hybrid vehicle sectors; if operating costs for ICE or hybrid vehicles fall further compared to EVs, the case for consumers to switch to EVs will become ever weaker.

Why Chinese carmakers are rethinking Russia and turning to Central Asia for growth

As sanctions, investor pressure, and rising import fees reshape the Russian market, Chinese OEMs are pulling back and redirecting investment to Kazakhstan and Uzbekistan.

Geopolitics and the auto industry are clearly linked through China. Two issues stand out: first, the supply chain disruption caused by disputes over the ownership and control of chip maker Nexperia (Honda is just one of the main companies whose production has been disrupted by this); and second, the future of Taiwan. The Chinese government has had its eye on taking control of Taiwan for far longer than President Trump has had his eyes on Greenland. The Chinese, moreover, tend to play the long game and the more they see the US focusing on issues within “its hemisphere”, the freer they will feel to choose when to try to take control of Taiwan. And when they do, the impact on chip supplies for the auto industry, and other sectors, will once again be front page news. To some extent, the US and European have tried to prevent this becoming an issue in future by building chip factories in the US and Europe. However, these developments also involve the likes of TMSC – Taiwan’s leading chip maker – making investments outside Taiwan and how far these would be impacted by any potential Chinese takeover of Taiwan is not yet clear.

The EV shift

The switch to EVs, especially in Europe, had been assumed to be inevitable and unstoppable. Not now. The EU’s plan had been to ban ICE vehicle sales from 2035, with even hybrids expected to have been reduced to a minor role by that date; in December 2025, however, under immense pressure from the vehicle companies and some national governments, the 2035 plans were watered down and hybrid sales beyond 2035 will now be allowed in greater numbers than before and various exemptions will also allow the likes of Porsche and other low volume brands to continue to sell ICE vehicles beyond 2035. The precise details of how the new regime will work in practice have not been fully worked through. However, vehicle companies’ investment plans, which had been predicated on a complete switch to EVs by the early 2030s, will certainly be rethought.

The slowdown in EV take-up outside Europe, especially in the US and Japan, has continued to influence the decisions taken in Europe; but at the same time, the Chinese are pressing ahead with the EV transition – and keeping hybrids on offer for Europe and other markets where the switch to full EVs is slowing.

Japanese carmakers look to increase imports of US built vehicles back to Japan

Japanese OEMs are increasingly sourcing vehicles from overseas plants for sale at home, reflecting shifting trade rules, cost pressures and manufacturing strategies. From India and Thailand to potential US imports, the trend highlights changing global production logic.

Changing investment priorities

Volvo had planned to be fully electric by 2030, but the return of Hakan Samuelson as CEO has led to a pragmatic change of plan; Volvo will continue with hybrids, especially PHEVs and a new range of EREVs well into the 2030s. Ford is continuing with EV programmes – in Europe this is in association with Renault on top of its earlier partnership with Volkswagen, while in the US its new Universal EV platform will provide the basis for various entry models for the US market. However, the Universal EV platform will not come to Europe for some years and in Europe, Ford’s Valencia factory will launch production of a new Bronco Sport model, with a PHEV powertrain; this will be made alongside the existing Kuga ICE model for a number of years. the Bronco programme was originally due to use a multi-energy platform but for now at least there will not be a BEV version produced in Spain. In the US, Ford has also cancelled investment in large electric SUVs and Pick-ups and will boost ICE production of these models instead.

Mercedes meanwhile has decided to continue with the A-class; this was due to be dropped but the continued popularity of an ICE-powered vehicle in this entry segment has proved too attractive to ignore; with profits being undermined elsewhere, the continued popularity of A-class renders the vehicle a potential cash-cow. To maximise its cash generating potential, production will shift from high-cost Germany to (relatively) low-cost Hungary. Similar moves can be seen at Stellantis in Europe and North America and many other vehicle companies as well.

Tariffs and the European local content issue

Register now: Digitalisation - Smarter automation

This livestream will provide a reality check on smart factory tech - what’s truly delivering on the shopfloor and where automation is finally paying off.

The final issue covered here concerns the impact of tariffs and European local content policy. The traditional trading system in vehicles was turned into turmoil early in 2025 by President Trump raising tariffs dramatically on US vehicle imports. Japanese, Korean and European companies were forced into a mix of short-term production switches, raising US production to avoid tariffs, and longer-term strategic change. How this will work out in the long run remains to be seen, but for now most countries face a 15% tariff on vehicle imports into the US. Mercedes and Volvo have responded by switching some production from Europe to the US, while Honda, Nissan, Toyota and Hyundai are increasing production volumes in the US.

Meanwhile in Europe, where the EU has imposed penal tariffs on Chinese EVs, Chinese companies have responded by raising imports of PHEVs and accelerating European EV production plans. The situation in Europe will become more complex again when the EU launches its “Made in Europe” policy; the details of this plan remain to be confirmed, but in essence they are likely to mean that vehicles sold in the EU will need a certain level of EU content to avoid being subject to tariffs. Depending on the level at which this local content is set, and how it is measured, there may be cases of some European-made vehicles with high levels of Asian content, falling foul of this rule. This is certainly an issue to watch with interest.