The electric vehicle industry faces a tsunami of challenges. But as the US sector slows, EU manufacturers could benefit from new opportunities

At a glance

  • President Trump’s policies on electric vehicles will shape the trajectory of the US’s industry and influence the sales and production of the sector in Europe, suggests analysis by Brussels-based policy think-tank Bruegel

  • Whether the EU decides to delay its 2035 ban on diesel and petrol cars will influence the competitiveness of the EU EV industry

  • There is also the question of making EVs affordable — the majority of EVs from China are deemed affordable, while most produced in the EU and the US are not

US President Donald Trump’s policies will not only shape the trajectory of his country’s electric vehicle industry, but will also influence the sales and production of the sector in Europe, according to analysis by Bruegel, a Brussels-based policy think-tank.

EVs became a major point of contention during the 2024 presidential election campaign as Trump attacked then-President Joe Biden’s focus on decarbonising the US economy, vowing to reverse many of the latter’s policies — including the targets and incentives designed to expand EV adoption.

On his first day in office, Trump signed an executive order to quash the target of making 50 per cent of vehicles sold in the US electric by 2030, and froze $5bn in unspent federal funding reserved for building EV charging stations.

The president is now one step away from also withdrawing a consumer tax credit of up to $7,500 for purchasing US-made EVs, introduced by Biden in 2021 as part of the Inflation Reduction Act, the largest climate legislation in US history. Not content with simply eliminating the incentive, under his proposed ‘big beautiful’ tax bill, Trump is proposing an $250 annual fee for EV owners.

Growing costs

Even without such actions, the cost of EV production in the US is expected to rise significantly because of its tariffs on China, on which the US EV industry depends for raw materials and components such as batteries.

In terms of production capacity and adoption, the US already lags behind China and Europe. In the first quarter of 2025, half of the cars sold in China and almost every fourth car sold in Europe was either fully electric or hybrid, compared with 10 per cent in the US, according to data from market intelligence firm EV Volumes.

According to Bruegel’s analysis, the withdrawal of federal EV-support policies, combined with increased production costs, undermines growth prospects for the US domestic market and threatens to reduce the competitiveness of US-made EVs abroad. These policy changes could also deter US consumers, limiting future growth prospects.

The broader reversal of decarbonisation policies by Trump is also creating uncertainty for future-facing industries in the US and the EU, which have closely integrated economies. In 2024, more than 20 per cent of vehicles exported from the EU were to the US. Furthermore, tariffs, the threat of a trade war escalation and the potential reorganisation of global EV supply chains are all likely to pose further risks to Europe’s industry.

Europe’s EV industry sees prospects, but with caveats

“Any slowdown in the US production of electric vehicles opens a significant window for other producers,” says Ben McWilliams, a co-author of the Bruegel report.

If the US administration decides to reprioritise the EV industry in the future, which McWilliams suggests is a likely possibility, it would be left “playing catch-up, and when the market opens again, European producers could be well placed to compete, even in the US”.

The adoption of EVs in the EU has been accelerated by 2019 legislation banning internal combustion engines by 2035.

“By far the largest impact will come from the upcoming review of the 2035 car CO₂ regulation, expected in early 2026. If the EU leadership keeps the 2030—2035 CO₂ standards, the EV transformation will continue,” says Julia Poliscanova, a senior director at Transport & Environment, a non-profit advocating for the European green transition.

Under pressure

The EU has been under pressure from various car manufacturers to scale back its climate ambitions, which have struggled to accelerate EV production.

“Demand for EVs is not yet strong enough in all customer groups and markets in Europe to make the ramp-up self-sustaining,” says Felicia Fullbrecht, spokesperson for VDA, the German car industry association. “It requires affordable charging electricity, an ambitious expansion of the charging infrastructure and an expansion of electricity grids.”

In May, the EU relaxed the 2025 CO₂ emission targets in response to mounting pressure. Two weeks later, the VDA called for a reversal of the 2035 ban.

Not all car manufacturers agree with the VDA, however. “We believe it’s important that the EU remains committed to the CO₂ tailpipe emission targets — challenging them will only delay the necessary transition,” says a spokesperson for Swedish carmaker Volvo, one of the largest European EV producers.

Meanwhile, Transport & Environment’s Poliscanova says: “If the targets are rolled back — as some in the engine and oil industry want — the EV gap with China will become irreversible and European carmakers will struggle to keep their global market share and their current European customers.”

China is the real competitor

A survey published last week by German consulting firm Baker Tilly shows most German automobile suppliers (65 per cent) believe that China, not the US, is the main emerging source of competition.

A brake was put on Chinese EV exports to Europe in 2023, when the EU imposed tariffs of up to 35.5 per cent, accusing Beijing of flooding European markets with cheap models.

Seventy-seven per cent of EVs produced in China were priced below $40,000 — the threshold commonly considered as affordable — compared to only around 15 per cent of EVs produced in the EU and the US.

China’s Commerce Ministry has said negotiations over the EU’s tariffs are in the “final stages”, as both sides discuss a minimum price threshold for Chinese EVs.

If agreed, this could be good news for both European and Chinese carmakers. However, the question would remain as to whether EU carmakers are willing and able to produce electric cars that people can afford. If not, they are unlikely to reap many rewards from US policies.