China Continues to Leapfrog Ahead in EVs
Global electric vehicle (EV) sales surged in June 2025, rising 24% year‑on‑year to 1.8 million units, underscoring a major acceleration in the transition away from combustion engines. China spearheaded growth with a 28% increase to 1.11 million vehicles, commanding 60% of the world market through aggressive state subsidies, domestic demand, and expanding exports. Europe followed with a 23% rise, driven by stringent carbon regulations and expanding charging infrastructure. By contrast, North America slipped 9%, weighed down by the rollback of U.S. federal tax credits and growing trade tensions with China over EVs and critical minerals.
This surge highlights shifting industrial leadership. Tesla, once the global bellwether, is now losing ground: European and Chinese competitors are outpacing it on price and innovation, while Tesla’s own sales have been slipping for three consecutive quarters. Elon Musk has publicly criticized recent U.S. policy reversals, warning they could undermine domestic EV leadership and delay climate targets. The emerging trade war—marked by U.S. tariffs on Chinese EV imports and Chinese counter‑measures on battery components—is reshaping supply chains, inflating costs, and pushing automakers to rethink their global strategies.
Base Case – Stable Growth Amid Policy Divergence (55%)
Global EV sales continue to climb, though the pace moderates slightly as markets absorb policy changes. China leads with over 14 million units projected for 2026, leveraging scale and subsidies. Europe maintains steady double‑digit growth, supported by Euro 7 standards and accelerated charging deployments. The U.S. market flattens but avoids deep decline as state‑level incentives partially offset federal rollbacks. Supply chains adapt slowly, with some battery and component production shifting to North America and allied nations. Tesla stabilizes after three quarters of slipping sales, as Elon Musk pivots toward more affordable models and manufacturing efficiency, preventing further erosion of market share.
Upside Case – Policy Alignment and Innovation Surge (25%)
A breakthrough in U.S.–China trade talks leads to tariff reductions on critical minerals and certain EV components, easing cost pressures worldwide. Investment surges as automakers announce new gigafactories in North America and Europe. Chinese brands push into Southeast Asia, Africa, and Latin America, tapping underpenetrated markets. Tesla launches an entry‑level model sooner than expected, boosting volume and global competitiveness. Battery costs drop another 15%, and charging infrastructure scales rapidly, making EV ownership cheaper and more practical. Global sales exceed 20 million units in 2026, and investor optimism fuels a wave of technological innovation.
Downside Case – Escalating Trade War and Supply Shocks (20%)
Tariffs between the U.S. and China intensify, with new restrictions on EV imports and retaliatory controls on lithium and rare‑earth exports. Supply chains fracture, driving global EV prices up 10–15% and delaying production schedules. Europe’s growth slows as input costs spike, while U.S. adoption shrinks under policy uncertainty and higher sticker prices. Tesla’s struggles deepen, with Elon Musk facing shareholder pressure over missed targets and declining margins. Smaller EV startups run out of capital, leading to consolidation and job losses. Global sales stall near 12 million units in 2026, undermining climate goals and extending reliance on hybrids and internal‑combustion vehicles.
