Energy Musings - October 13, 2025
With the ending of U.S. government subsidies, the EV industry is operating in a new world. Not everyone has caught up with the shifting EV market and how it may evolve.
The New World For EVs
A play on the dialogue in Ernest Hemingway’s 1926 novel, The Sun Also Rises, characterizes the dilemma of today’s electric vehicle (EV) industry:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
“What brought it on?”
“Friends,” said Mike. “I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England.”
In September, EV’s friends (customers) sucked up dealer inventories before the federal government’s $7,500 subsidy ended. Now it appears that those friends are deserting the industry because EV manufacturers are warning about an impending sales crash. Several auto manufacturers are offering to provide equivalent subsidies for the EVs parked on dealer lots.
According to Cox Automotive, dealers have about 134,000 EVs parked, which, at the current selling rate, would take two months to unload. At a recent Ford Motor Inc. event, CEO Jim Farley told reporters, “We expect a pretty deep fall off.” He told them that he expected the EV market share to decline by more than half, to between 4% and 5%, by the end of the year, just three months away.
This outlook follows record EV sales in September, which helped all manufacturers post healthy third-quarter auto sales. The switch from record sales to them falling by more than half suggests the EV industry’s friends were “false friends” like Hemingway’s Mike’s friends. EV friends appear to have been heavily influenced by the monetary reward from the federal government.
The Trump administration is no fan of EVs, despite the relationship with Elon Musk. It will not be pushing consumers like cattle at the end of a trail drive to funnel into the EV chute, as the Biden administration had intended. The last administration was aligned entirely with California, which has promoted EVs as the solution to auto emissions.
The path to EVs began in California decades ago, as it dealt with the smog that would blanket Los Angeles at certain times of the year. By redesigning the fuel, the smog was essentially eliminated. California required special exemptions from national fuel standards, which encouraged it to push for further fuel efficiency standards, which were subsequently adopted by 24 states.
As California was the nation’s largest car market, the addition of other states increased the power of the state’s strategy and convinced automakers to build cars that complied with these tighter fuel-efficiency standards. Car buyers in the rest of the country were forced to purchase these models as their only option.
When climate change became a societal movement, ending the pollution of internal combustion engine (ICE) vehicles was believed to be an easy solution. We had cleaned up the fuel over the years – eliminating lead and then redesigning it for atmospheric conditions – so why not eliminate the tailpipe? The teething issues of charging, range, and performance in extreme weather conditions seemed like easy problems to overcome. Besides, drivers would love the experience of driving EVs.
Forecasts called for soaring sales of EVs, despite their real-world shortcomings. The key was providing sufficient subsidies to overcome the cost differential between EVs and ICE vehicles. Sales took off, but from a low base. The EV promoters were convinced the industry would experience the S-curve of other new technologies. What we saw, however, was that whenever subsidies were eliminated, EV sales crashed. In Georgia, it eliminated the state’s EV credit, which was responsible for EV registrations soaring from 1,469 in March 2013 to 10,482 the following year. However, the subsidy program cost the state $1 million in 2012 and $14 million in 2013. When the subsidy program ended, EV sales fell by 80%.
Georgia’s experience was replicated in other states and countries when EV subsidies were cut or eliminated, even in China. Therefore, we were not surprised to read Farley’s observations about Ford’s expectations following the end of EV subsidies.
While Hemingway’s dialogue seems to capture the EV industry’s plight, it really is only stating the reality that complex systems often evolve in non-linear ways. That is because beneath the surface of seemingly stable systems, there are frequently hidden frailties and slow-moving feedback loops that accumulate until they reach a point of no return, causing the system to crash. This suggests that we should adopt a long-term mindset and be willing to tolerate short-term gains and setbacks.
Is the EV industry experiencing a short-term setback or dealing with long-term issues? Many people remain convinced that EV sales will continue to grow. Our problem with this expectation is that most people making the claim think that all EVs are the same. That is not true, but the media’s and many research organizations’ reporting treats them all alike.
Global EV sales from 2014 to 2024 reveal a shifting market.
The International Energy Agency’s Global EV Outlook 2025 report, updated in July, contained the chart above. It shows the regional sales of EVs from 2014 to 2024. Note how total EV sales rose dramatically starting in 2021. We examined the breakdown of sales between BEVs (fully electric vehicles) and PHEVs (plug-in hybrid electric vehicles) for the overall market and for the reported regions.
Total EV sales rose steadily from 2021 to 2024. Surprisingly, each year experienced an increase in total EV sales of 3.6 million vehicles. However, when one examines the growth in BEVs and PHEVs, a noticeable difference is evident. For the four years, 2021-2024, BEV sales were 4.6, 7.3, 9.5, and 10.8 million units, respectively. That results in annual increases of 2.7, 2.2, and 1.3 million units—a dramatically slowing growth rate.
However, we observe a different pattern when examining the sales of PHEVs. For 2021-2024, annual sales increased from 1.9 million to 2.8 million, then to 4.2 million, and finally to 6.5 million, respectively. That results in yearly increases of 0.9, 1.4, and 2.3 million. That is the exact opposite of the growth trend for BEVs.
What the IEA doesn’t count is the number of traditional hybrids, which also employ an electric motor and battery, along with an internal combustion engine. Still, the batteries and electric motors are limited, just as those of the PHEVs are.
Hybrid electric vehicles are leading the U.S. EV market.
The chart above from the Bureau of Transportation Statistics shows the breakdown of U.S. annual EV sales for 2010-2024. The data shows annual sales by hybrid electric, PHEVs, and BEVs. Hybrid electric vehicles were introduced well before PHEVs and BEVs became popular. The government has noted the growing popularity of BEVs in recent years. However, BEVs have never outsold hybrid electric vehicles, although they came close in 2022 and 2023. However, note the margin by which hybrid electric vehicles outsold BEVs in 2024.
What happened in 2024 was that car buyers realized that the cheaper hybrid electric vehicles were a better option than a BEV. That was probably due to the challenge and expense of using public chargers. The charger network has expanded at a slower rate than anticipated. Furthermore, the public is wrestling with rapidly escalating electricity prices, which makes using public chargers even more expensive.
Auto manufacturers have taken note of the surge in hybrid electric vehicle sales and the public’s changing attitude toward them. They are shifting production away from BEVs to build more of these popular vehicles.
Let’s look at some recent global sales data for the first quarter of 2025 as reported by Strategy&, PwC’s global strategy consulting business, along with PwC Autofacts® automotive industry and function experts. The first quarter 2025 sales review examines auto sales in many national markets. Although we don’t get a global total, the scope of the regional coverage is broad and captures most major auto markets, providing a reasonable approximation of the worldwide market.
The European market encompasses the 27 members of the European Union, as well as the UK and the members of the European Free Trade Association. For the first quarter of 2025, this region had 574,000 BEV, 268,000 PHEV, and 1.215 million hybrid electric vehicle sales. In the U.S., the totals were 301,000 BEVs, 79,000 PHEVs, and 473,000 hybrid electric vehicle sales. China was the one market where hybrid electric vehicle sales were only a fraction of BEV sales. The China figures were 1.640 million BEV, 994,000 PHEV, and 213,000 hybrid electric vehicle sales.
Of the remaining seven national markets analyzed (Japan, South Korea, Australia, India, Indonesia, Turkey, and Brazil), only Brazil had BEVs and PHEVs outselling hybrid electric vehicles. In the other six markets, hybrid electric vehicles outsold BEVs and PHEVs, in most cases, even when those categories were combined. However, what characterized the narrative of the report was the global totals that favor BEVs and PHEVs. The global totals were BEV sales of 2.664 million, PHEV sales of 1.400 million, and hybrid electric vehicle sales of 2.700 million. Here are the numbers if we exclude China’s sales: BEV, 1,024 million; PHEV, 406,000; and hybrid electric sales, 2,487 million.
It is clear that, excluding China, hybrid electric vehicles are the preferred choice of clean vehicles for most of the world’s auto buyers. We can expect to see this favoritism increase with the loss of U.S. EV subsidies. We are also witnessing other countries straining under the weight of renewable energy subsidies, of which EVs are a part.
The growth of hybrid electric vehicles reminds us of the successful strategy behind them, as expressed by Akio Toyota, chairman of the automaker. In 2024, he told the media in Tokyo, “The enemy is CO2.” However, he told them that “Customers, not regulations or politics,” should decide on the path to cleaner vehicles. He disappointed EV proponents with his claim that BEVs would remain at a 30% market share “no matter how much progress BEVs make.” He said that 70% of the auto market would consist of ICE vehicles, hybrid electric, or hydrogen models.
He heads a company that has employed successful strategies, which competitors dismissed as irrational. It started in the late 1980s, when Toyota announced plans to sell luxury cars. How, industry observers wondered, could the maker of cheap Corollas do it? Toyota conceived its Lexus brand and a new way to treat customers, which has led to its immense success.
The company shocked the automotive world in the late 1990s with the introduction of the Prius, a hybrid electric vehicle, in response to stricter California fuel efficiency rules. How could the company build a vehicle that would bear the weight, complexity, and cost of two power systems? Not only was the Prius a successful vehicle, but it also led the way for Toyota to introduce hybrid electric versions of all its models, making it the leader in this market sector.
We are constantly reminded of the root of the hybrid electric strategy. With the same amount of lithium in a 75-kilowatt-hour battery for a BEV, Toyota could build 90 hybrid electric vehicles. They could sell these cleaner vehicles to more customers and make a greater contribution to reducing carbon emissions than selling only one BEV, or potentially nine PHEVs. If the enemy is CO2, the hybrid electric strategy is more impactful. Its impact is driven by overcoming range/charging worries and offering a more affordable vehicle.
It will be interesting to watch how the EV market evolves in the long term without subsidies. I think we already know the path.