The trend: The transition to electric vehicles has hit a skid.

• The European Union is backing off its plan to phase out sales of new internal combustion engine vehicles by 2035 after pressure from automakers and several national leaders, per Bloomberg. A revised plan will allow plug-in hybrids and electric vehicles with fuel-powered range extenders.
• In the US, Ford is scaling back its EV push, resulting in a $19.5 billion charge against earnings. As part of that pivot, it is halting production of the all-electric F-150 Lightning and shifting focus to hybrids. The company said battery plants originally meant to supply Ford trucks will now send batteries to support the electric grid instead.

Why is this happening? EVs have been incredibly expensive for automakers. Ford, for example, has had losses of $13 billion on its EV business since 2023.

• Demand has relied heavily on government incentives. The scheduled expiration of US EV tax credits is expected to sharply reduce sales. In Europe, sales of new battery-electric cars slowed last year after Germany and others withdrew purchase incentives.
• And while automakers had been investing heavily to meet stringent emissions rules set during the Biden administration, they no longer face the same pressure now that the Trump administration has rolled back those regulations and is challenging states’ authority to set tougher standards.

Our take: Consumer demand for EVs remains limited by concerns over cost and driving range, factors that take on more importance as affordability is top of mind for many consumers.

Without incentives to prop up demand, EV share is expected to slip to 6% next year from 7.5% this year, according to Edmunds. The shift is already visible: EV lease penetration fell to 53% in November, down from 71% in September before the credit expired. That suggests that the EV transition is likely to continue moving at a much slower pace than automakers—and policymakers—once imagined.