The automotive industry continues to grapple with seismic changes as we approach the midpoint of 2025. This uncertainty is obscuring any forecasted performance and that is on full display in Bank of America’s annual “Car Wars” report. It presented a fairly tough outlook for automakers over the next few years. From faltering EV demand to reduced model launches, the findings signal turbulence ahead for the entire industry.
Electric Vehicles Struggle to Meet Expectations
Despite billions invested in EV development, the Car Wars report indicates a significant slowdown in consumer adoption. EVs currently make up about eight percent of annual U.S. auto sales, far below desired projections. Factors such as limited charging infrastructure, high initial costs, and range anxiety continue to suppress demand.
A sharp reduction is expected for EV model launches. Over the next four years, automakers are set to introduce just 71 EV nameplates, roughly half of the originally projected 140. This decline reflects waning consumer interest as well as shifts in regulatory incentives and will have cascading consequences.
“The unprecedented EV head-fake has wreaked havoc on product plans,” said Bank of America Securities analyst John Murphy in the report. “The next four+ years will be the most uncertain and volatile time in product strategy ever.”
For automakers like General Motors and Ford, the repercussions could be significant, involving potential multi-billion-dollar write-downs on EV investments. While the EV movement gained momentum during the Biden administration’s drive to combat greenhouse gas emissions, the ongoing economic shifts under subsequent leadership has stalled that progress. This has only compounded challenges for automakers reliant on electric powertrains.
“The money has been spent,” said Murphy. “You can’t get it back.”
Model Launches Hit Multi-Decade Lows
There is a dramatic slowdown in new vehicle introductions, driven by the challenges in EV production and cost containment. This year alone, the industry saw just 29 new model launches, marking the lowest number in decades. That rate is not projected to improve much over the rest of the decade either.
“What’s wild this year is that we expect 159 models to be launched over the next four years. Last year was over 200; traditionally, it’s over 200,” said Murphy at an Automotive Press Association event. “We have never seen this kind of change before.”
This reduction in new model activity is expected to result in low showroom replacement rates. Traditionally, replacement rates hover at 15 percent within the industry, but Car Wars predicts rates of just 11 percent in 2026 and 2027. Reduced replacement cycles may curtail industry growth while creating a challenging retail environment for dealerships and automakers alike.
Tesla, who has had its share of struggles as of late, garnered attention for its comparatively high projected replacement rate of 22.4 percent. This suggests potential market share growth in the years ahead. However, Murphy remains skeptical.
“That’s questionable whether that all will happen,” said Murphy. “Given their track record of not really introducing new-generation models.”
The Return to Internal Combustion Engines
Faced with the dual pressures of faltering EV demand and high costs, legacy automakers are refocusing on their bread-and-butter internal combustion engine models. These vehicles generate the lion’s share of current profits and could offer a lifeline for ensuring financial stability.
“We think that automakers must lean heavily into their core ICE product portfolios to generate the capital to fund the uncertain future,” said Murphy. “Although we’ve said lower product intros, that these core products that generate a lot of profit for the companies, including the D3, will likely create a pretty profitable next few years for the industry. So, although it looks a bit scary at the moment, I do think we’re looking at a pretty good upside to earnings, and potentially stocks over the coming years.”
For industry giants like Ford, General Motors, and Stellantis, sustaining their ICE product lines is seen as a pragmatic strategy. By leveraging the profitability of SUVs and trucks, these companies can secure shareholder returns while navigating market shifts. These vehicles could ensure the much-needed capital required to fund future investments in EVs, autonomous technologies, and connected services.
Crossovers and the Chinese Market
The report also highlights stagnation in crossover vehicle demand, a stark contrast to the segment’s two-decade surge. The crossover boom, driven by consumer preferences for higher seating positions and versatile interiors, appears to have reached its saturation point.
Meanwhile, China, long a growth engine for the global auto industry, faces its challenges. Murphy predicts “massive consolidation” within China’s auto market due to oversupply and heightened competition.
“What you’re seeing in China is a bit disturbing because there is a lack of demand,” said Murphy. “There’s extreme price cutting, and there’s a lot of export that’s rising, particularly over the last four or five years. Essentially net neutral to over 7 million units last year.”
With geopolitical tensions further complicating matters, the U.S. market is not likely to see an influx of Chinese auto brands any time soon.
“I don’t think just from a technology or geopolitical perspective, that you really want to wall off the U.S. from China,” said Murphy. “It may be just simply that massive excess capacity you want to protect the U.S. market from until it works itself out and we see massive consolidation in the Chinese market.”
Industry at a Crossroads
The next couple years will be yet another turning point for automakers, with seismic shifts in consumer preferences, trade conditions, and regulatory landscapes reshaping the industry.
“It’s gonna be a little bit of a rough ride for these two years,” said Murphy.
Still, while challenges abound, Murphy remains cautiously optimistic about long-term prospects for profitability. Particularly for companies able to strike a balance between current demand and forward-thinking innovations.
“In the near term, it’s leveraging the connectivity, going after what we know is a very lucrative part of the value chain,” said Murphy. “They’ve been somewhat shut off from lack of attention to the consumer and a dealer body that needs to be reworked to some degree in a significant way, will create a real, real opportunity.”
Related Stories:
