2025: It’s Time That We Execute
Laozi (老子), a Chinese Taoist philosopher who lived in the 6thcentury BCE, said in his famous quote, “Those who have knowledge don’t predict; and those who predict don’t have knowledge.” This is particularly true in the battery industry and electric vehicles (EVs). Our optimism in the past several years is yielding to a more poignant reality that the energy transition and adoption of EVs are much harder than anyone thought.
By 2025, Tesla was supposed to be the dominant global maker of EVs, not BYD and their cohort of Chinese manufacturers. Solid-state batteries were supposed to be in vehicles already. And EVs would be affordable, not only in China, but globally.
Last year offered a respite for automakers in their expensive pursuit of electric vehicles. The market continued to favor hybrid and plug-in hybrids; automakers didn’t hesitate to cut their losses in building battery EVs and shift their resources to the more profitable hybrids. Adam Jonas, managing director at Morgan Stanley, remarked that “ICE is nice,” meaning that the industry and Wall Street prefer the profits of combustion engine vehicles over the financial losses of EVs.
Investors backing battery companies in North America and Europe felt the financial pains of EV adoption delays. The bankruptcy of Northvolt sent shudders throughout the industry. Battery manufacturers that dared to go public in the SPAC wave of 2020-2022 saw their share prices decline precipitously. Even the giant battery makers in Asia saw their operating margins come under pressure. Capital markets are far more demanding today: they prioritize profitability over growth.
The promise of the Trump administration reversing the generous subsidies that the Biden administration offered under the Inflation Reduction Act (IRA) of 2022 is forcing many involved in building batteries and EVs to redraw a faster path to self-sufficiency and to add resilience to their businesses.
None of these observations mean that the transition to EVs is stopping. A year ago, I spoke of digging deeper holes, from holes in the ground to holes in the pockets of investors. Even with the slowdown in EV adoption, the charging infrastructure buildout in the United States continues at a strong pace. The number of publicly available EV charging stations increased from 29,000 in 2020 to over 61,000 in 2024. EVs accounted for about 7% of new vehicle sales in the US during the first half of 2024.
Former US secretary of defense James Mattis coined the phrase "The enemy gets a vote” to highlight the complexity of military operations. Yet this is also true in the global race to shape and dominate the $3.5-trillion automotive industry. China gets a big and growing vote in batteries and EVs. America’s future competitiveness depends on how we execute in 2025.
As we look ahead, policymaking, business execution and profitability are priorities, replacing technology hype, optimism and excess capital that seemed to be the norm a few years back.
First, as trade barriers and protectionist policies continue and the role of the federal government in the energy transition becomes questionable, the role of local and state policymakers will become more prominent. The courts will likely decide whether California can keep its waiver from the EPA to set tight emission standards. These legal decisions will shape the industry for decades to come. California Governor Newsom has proposed replacing the $7,500 federal tax credit for EVs with a new state incentive, while the state continues to lead in its support for zero-emission vehicles.
Second, flawless execution among large as well as small companies in the automotive ecosystem is critical for our future competitiveness. For large automakers, it means producing EVs that are desirable, affordable and that address the concerns of drivers, including range anxiety and reliability…and they need to be profitable to the automakers, which is proving to be a difficult feat. For smaller companies offering new innovations, it is simple: prove your business model by getting adopted in vehicles or die!
Partnerships should also accelerate in order to create an efficient ecosystem. The announced joint venture between VW and Rivian serves as a template for large vehicle manufacturers to insource innovative technologies from younger and agile companies. The pharmaceutical and information technology industries learned in the past decades to accelerate their competitiveness by rapidly insourcing and integrating technologies from younger startups. The automotive industry should learn from their experiences.
Third, profitability means capital markets will only support companies that can demonstrate scale and sustainable business models. Building EVs profitably is hard. It requires a very different supply chain for electric powertrains as well as new skills and processes such as software, both of which remain nascent and inefficient. These technical and financial challenges will continue to point towards a painful trend of consolidation in the automotive industry. The announcement that Honda and Nissan plan to merge in 2026 is the first of several such mega mergers that we ought to expect.
Mergers will not be limited to vehicle makers; Tier-1 suppliers will feel the pressure to follow this pattern. Deeply rooted in mechanical engineering, materials and advanced manufacturing, Tier-1 suppliers must redefine their position in the EV supply chain. How long will it be before the next giant Tier-1 is a software company? Even small innovative companies will need to consolidate, by being acquired or by merging with other smaller companies to create scale.
This is the time to secure America’s place at the forefront of electric mobility. Execution will shape our future. A failure to execute well in 2025 and beyond risks that America will be driving vehicles designed or produced in China in the coming decade. Tariffs will only delay this bitter outcome.