From China sales to USMCA uncertainty: Automotive developments to watch

Highlights

• China: Light vehicle sales are expected to continue their dramatic decline this year, although we see some opportunity for a temporary increase in 2027.
• Europe: The recently proposed Industrial Acceleration Act aims to support regional manufacturing, while trade policies shift focus to hybrid electric vehicles, including conventional hybrids (HEVs) and plug-in hybrid electric vehicles (PHEVs).
• US: A new USMCA deal could slip to 2029; possibility for current tariffs to be reduced.
• Global: DRAM costs are still rising, with printed circuit boards seen as a possible new risk.

As the industry looks toward 2027, several recent developments are expected to influence the automotive landscape across major markets. Mobility Global is monitoring changes in China's sales outlook, evolving policy proposals in Europe, uncertainty around North American trade negotiations and ongoing pressures in the electronics supply chain.

New working draft of China sales forecast: Deeper slump in 2026, partial recovery in 2027

Our latest working forecast indicates China light-vehicle sales could decline by about 21.5% in 2026, roughly 5% to 6% below our previous outlook as the market performance has fallen to the lower range of scenarios we have been monitoring. The figures quoted here do not represent the final iteration of our upcoming forecast and may change. The assumption and direction will remain the same.

Looking to 2027, we see some conditions supporting growth of about 5%. Even with that recovery, the market would remain well below 23 million units, after reaching 27.3 million units in 2025. Expected tailwinds include the planned phaseout of some incentives in December 2027 supporting pull-ahead sales, declining lithium prices, faster charging options and more value in the B through E segment offerings.

Among the headwinds contributing to the decline in 2026 was that an incentive in 2025 pulled ahead sales of A-segment vehicles. That impact will be fading in 2027. High oil prices are expected to be a continuing headwind to market progress.

Risks to this outlook remain elevated. As we enter 2027 with a lower sales run rate, there is also uncertainty about how shifting economic conditions could impact new-car buyers. These reflect the potential for a weaker economy than previously expected. Automakers are sensing the risk as well, with Geely Chairman An Conghui saying on Oct 29 that he expects sales will decline in 2027.

European Union proposes “made in EU, for EU” industrial policy, while tightening hybrid import policy

On the European front, the Industrial Accelerator Act (IAA) was proposed earlier this year. The IAA proposes that, beginning in 2027, electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell electric vehicles (FCEVs) will only qualify for incentives if they are produced in the EU and contain at least 70% EU-made components value. This 70% value requirement would exclude the battery. Production of standard hybrids and ICE-only vehicles are also excluded from the proposal. In 2030, a second phase would include EU battery production and e-drive components, with stricter rules possible later next decade. There is a cost safeguard in the proposal, which could ease the rules if costs rise sharply.

There are also EU proposals regarding emissions reductions, as current targets have not been achievable. In fact, on Nov 4, the European Parliament’s Committee on the Environment, Climate and Food Safety Committee on the Environment, Climate and Food Safety, voted to weaken the proposed 2035 emissions targets for passenger vehicles. There are more procedural votes to be taken but provides further evidence of weakening regulations.

Additionally, the EU and China have agreed to a deal that puts a four-year annual cap on imported hybrid (HEVs) and plug-in hybrid electric vehicles (PHEVs), potentially beginning in late 2026. The cap covers vehicles from all origins, including free-trade partners. The quota is in provisional form for 200 days and then sees an EU vote.

Mobility Global expects a more pragmatic version of the IAA to be finalized and come into force in 2028 rather than 2027. We presume that the EU will use incentives to encourage IAA-compliant vehicles (subsidies, tenders, C02 credits, etc) rather than setting quotas or bans.

For the HEV and PHEV cap agreement between the EU and China, we expect that 2027 sales of imported hybrids from China will be higher, as stock imported ahead of the cap is sold. From 2028, imports are expected to align with the quota, with BYD, MG and Chery leading. In the mid-term, the cap will accelerate China OEM localization in Europe.

Reduced hybrid imports from China are expected to create additional opportunities for European-built hybrid vehicles. Overall, local production and supply-chain investment are becoming a necessity for Chinese OEM growth in Europe, which we see as naturally favoring the larger automakers.

USMCA 2.0: Temporary agreements may tide over until 2029

In the United States, now that the Democratic party has taken majority position in both the House and Senate in the Nov 3, 2026 midterm elections, there may be more pushback and less support for White House initiatives over the second half of President Donald Trump’s term, which ends in January 2029. Mobility Global is not adjusting forecasts on this turn of events currently. The policy outlook will largely depend on how Congress and the administration approach trade and industrial policy over the next two years.

While we previously expected a new USMCA trade agreement to take place this year, that assumption has not materialized. Any bi-lateral agreement would need to be passed as legislation by the House of Representatives, the Senate and signed by the President. With a divided political environment, reaching a comprehensive agreement before 2029 may prove difficult.

A finalized USMCA agreement is unlikely, but the president can still change the rate of automotive tariffs assessed through the Section 232 orders, which affect vehicles and parts, steel, aluminum and copper. The requirement for the Congress to formalize trade agreements also applies to the agreements with the EU, UK, South Korea and Japan, though the governments have largely been provisionally honoring them without full ratification from all involved governments.

There is ongoing pressure for adding a US value-add clause to USMCA, which would mean that vehicles would be required to have a certain value of components from US manufacturing to be compliant, as well as meeting the regional value requirement. A US value-add clause might result in manufacturing of core parts (engine, transmission, propulsion battery and e-axle) shifting to a US focus and shift sourcing decisions from Canada, Mexico and outside of North America. As it is not yet included, it creates uncertainty for investment decisions. Both Canada and Mexico seek to reduce US economic focus as a safeguard against a long-term US inward policy.

Against this background, Mobility Global sees the most likely outcome as a bilateral tolerance or mid-term tri-lateral accommodation which could shift the Section 232 tariffs on autos and parts to 15% versus the 25% currently and the 50% that President Trump says will be imposed on Canada beginning Jan 1, 2027. Under this scenario, the White House is expected to hold ground, though pressure from Congress and economic realities could result in some tariff accommodation late in 2027.

Another scenario would see Mexico and the US reaching an accommodation early in 2027, with Canada and the US following in the middle of next year. The administration may increasingly pursue trade accommodations that can be implemented without requiring broader Congressional action.

A third scenario is the most difficult for the auto industry. In that case, current and expected tariffs would last through 2028, creating a potential bilateral split which suboptimizes trade and increases costs, while Mexico and Canada wait for the next administration, hoping for a lower-tariff outcome. If this scenario plays out, among the risks for the US industry is both Canada and Mexico looking to other trading partners. Mexico and Canada have incentive to settle for temporary bilateral agreements to bide time until 2029 and a new administration. We are not predicting whether the 2029 administration will be Republican or Democratic, or what policies it will focus on.

DRAM costs continue to impact automakers globally

Globally, rapid investment in AI data centers continues to absorb a growing share of electronics manufacturing capacity, and automotive buyers are increasingly competing with hyperscalers for the same components; we have been reporting on this situation since November 2025.

DRAM prices for 2027 have been reset at an even higher level than anticipated only a few weeks ago, most likely because the annual round of 2027 price negotiations have just started. For now, DRAM is mainly an inflation issue: it is driving up electronics costs per vehicle, but we have no reports of car production disruptions linked to DRAM availability. We believe the higher DRAM prices could translate to about $200 cost increase per vehicle in 2028.

The situation is different for printed circuit boards (PCBs) and analog chips made on mature (legacy) nodes, where the issue is both rising prices and a possible supply disruption. PCBs are needed in every electronic part of a car, and each is a potential weak link. The first possible signs of constraints on PCBs for electronic control units (ECUs) appeared about two months ago. Analog chips are also needed in every electronic module in the car. Capacity is already scarce and these chips are often application specific, making replacement on short notice difficult. Automotive analog prices are already rising sharply in 2026, with double-digit increases expected in 2027.

Challenges vary from region to region

There are shared concerns across regions, including rising electronics costs and potential supply-chain constraints, but the challenges facing the industry vary by market. China continues to face pressure on vehicle demand, Europe is reassessing elements of its industrial and regulatory framework while seeking to support regional manufacturing of EVs and PHEVs, and uncertainty remains around North American trade policy and tariff negotiations. These developments remain important areas to watch for automakers, suppliers and other industry stakeholders.