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Freedom251 › Blog › auto industry

What Are the Risks of Investing in Automakers During the EV Transition?

By Freedom251 Team · · 6 min read

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The main risk is not simply that electric vehicles (EVs) will succeed or fail. Automakers can lose money if they misjudge where demand will grow, cannot sell EVs at attractive margins, commit to more capacity than buyers need, or struggle to secure affordable batteries and materials. At the same time, some depend on profits from gasoline-powered vehicles to fund the transition. Those exposures vary by company, region and product mix.

Why EV growth does not settle the investment question

EV adoption can expand overall while demand weakens in a particular country, price range or vehicle segment. The International Energy Agency’s 2026 outlook describes continued adoption across many markets, but its mid-2026 update also reports that global car sales fell around 5% year over year in the first half of 2026. Electric-car sales rose 4% year over year in the second quarter and were 35% higher than in the first quarter. These are reported first-half and quarterly figures, not a full-year result; the IEA’s annual outlook is a forecast.

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Investors therefore need to distinguish market growth from a particular manufacturer’s ability to turn sales into durable earnings. Adoption depends on vehicle prices and features, charging access, energy costs, customer preferences and incentives. A company can be exposed to a growing market and still struggle if its models do not fit local buyers or if its investment arrives ahead of demand.

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Can automakers sell EVs profitably?

Competition and product execution

Higher EV sales do not automatically produce higher profits. Returns depend on the price customers will pay and the costs of batteries, manufacturing, distribution, software and warranty support. Quality, range, charging experience and the appeal of the vehicle also affect whether a model can compete without costly discounts.

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The IEA says Chinese automakers supplied 60% of global electric-car sales in 2025, compared with about 15% each for European and North American automakers. It also estimates that nearly 75% of electric cars produced worldwide in 2025 were made in China. These figures describe sales and production shares, not company margins or future stock performance. The IEA notes that automakers focused on internal-combustion-engine (ICE) vehicles have a much larger share of ICE sales than of EV sales. Volkswagen Group identifies intensifying competition and products that fail to meet demand as risks in its 2025 annual report.

Demand, affordability and regional fit

A manufacturer’s product plan can miss the mark if the vehicles are too expensive, lack features buyers value, or depend on charging access that is limited in the target market. General Motors identifies relative cost, vehicle features, range, charging infrastructure, energy prices and incentive availability as factors that may affect EV demand. Consider whether each automaker’s models and price points match the regions where it sells and produces vehicles, rather than assuming global adoption translates evenly into its sales.

How can transition spending pressure profits and cash?

Capacity and investment commitments

Developing EVs can require spending on platforms, factories, tooling, batteries and suppliers before the company knows how many vehicles it can sell. If demand falls short of plans, plants may be underused and product or capacity plans may need to be resized. Long-lived assets and supplier commitments can make that adjustment expensive.

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General Motors provides a company-specific example in its 2025 Form 10-K: it recorded $7.9 billion in charges in GM North America for fiscal 2025 related to EV-capacity and manufacturing-footprint realignment. The filing describes a mix of non-cash and cash-related charges and says further material cash and non-cash charges related to ongoing supplier negotiations were possible in 2026. This is GM’s reported result for a defined region and fiscal year, not an estimate of typical losses across the auto industry.

Charges are not all the same as cash spending

An impairment or restructuring charge can reduce reported earnings without an equivalent cash payment in the same period; other costs do require cash. When reviewing an automaker’s results, check what its charges include, whether they are cash or non-cash, when payments are expected, and how planned investment compares with actual output and operating cash flow. Also look for changes to capacity plans, supplier obligations and product launches rather than treating a single accounting figure as a complete measure of transition cost.

Can legacy vehicle profits support the transition?

ICE vehicles can be both a source of funding and a vulnerability. General Motors says its near-term profitability depends on its current vehicle lineup, particularly full-size ICE SUVs and pickup trucks, and that cash from current ICE vehicles supports growth initiatives including EVs. That reliance creates timing exposure: if demand, fuel economics or regulation pressure those established products before new vehicles produce sufficient returns, the company may have less cash available to fund its plans.

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The balance differs across automakers. Review each company’s disclosed powertrain mix, the importance of established models to its earnings, and the cash available for investment. Do not assume that one manufacturer’s dependence on ICE profits applies to all of them.

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What battery and materials risks should investors watch?

Battery supply creates both cost and continuity risks. The IEA reports that China accounted for over 80% of global battery-cell production in 2025 and held an even larger position in some active battery materials. A concentrated supply base can leave manufacturers exposed to price changes, delivery delays or disruptions, especially when they have few qualified alternatives.

Volkswagen Group’s 2025 annual report describes a limited pool of battery-cell suppliers, exposure to critical-material prices and availability, supplier financial distress, and possible interruptions to deliveries. A manufacturer may also face execution challenges when qualifying new suppliers or building its own production capability. Diversification or greater control over supply can reduce some dependencies, but requires investment and brings its own execution risks.

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How can policy and trade changes affect automakers?

Policy can influence customer demand through incentives and emissions requirements, while tariffs, local-content rules and other trade measures can affect production costs and market access. The IEA’s 2026 material identifies policy uncertainty and changing trade flows as factors in the EV outlook. GM links changes in US policy and incentives to slower-than-anticipated adoption and its reassessment of EV capacity. Volkswagen lists trade restrictions, policy requirements and geopolitical uncertainty among its risks.

These exposures are geographic, not uniform. A change that affects one company’s market or supply chain may not have the same effect on another’s. When assessing a specific automaker, identify where it sells and builds vehicles, which markets provide key components, and which local incentives or rules matter to its plans. The figures here do not inventory current national regulations, so a specific policy’s status should be checked against current official guidance.

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How to compare automakers’ transition exposure

Use company filings and results to investigate the same dimensions across manufacturers. These are diligence questions, not a ranking or a stock recommendation.

Dimension What to examine Why it matters
Market exposure Sales, production and growth by region; reliance on a single market or customer segment. Demand and policy can differ by geography and vehicle type.
Powertrain economics ICE, hybrid and EV mix; disclosed profitability; how current vehicle cash flow supports investment. Transition timing depends partly on whether existing operations can fund new products.
Execution Product launches, pricing, capacity use, manufacturing flexibility, and battery or software capabilities. Market growth is not enough if products or production do not meet buyer needs at viable cost.
Capital and cash Investment plans, committed capacity, restructuring and impairment charges, supplier obligations, and cash flow. Spending ahead of demand can weaken returns or constrain other investment.
Supply resilience Battery and mineral sources, supplier and geographic concentration, and alternatives during disruptions. Supply problems can affect both costs and the ability to build vehicles.
Policy and trade Exposure to incentives, emissions requirements, tariffs and local-production rules. Changes can alter customer economics, costs and access to markets.

Selected 2025 company reports and IEA market figures illuminate these risks, but they do not provide a complete comparison of every automaker or a valuation analysis. The evidence supports questions to investigate—not a loss probability, expected return or buy/sell conclusion.

Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.

auto industryautomakerselectric vehiclesEV transitioninvesting

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