Hybrid electric vehicles (HEVs) are likely to help fill the gap as battery EV sales slow. The researchers see a structural shift in the US market toward hybrids and cite updated strategies from manufacturers. Japanese and Korean makers, in particular, have announced plans to shift a significant part of their product lineup from internal combustion engines to hybrid drivetrains.
Profit margins for car makers to rise as hybrid sales increase
Margins in North America for major US and Asian automakers may increase by 2 to 3 percentage points, adding between $15 billion and $22 billion to earnings before taxes for a group of companies that had combined operating profits of about $52 billion in 2024, Yuzawa writes.
As mandates to sell low-margin EVs ease, traditional automakers can maximize profits by selling a mix of gasoline-powered vehicles and hybrids. Recent comments from several traditional automakers support this view.
“The strength of HEV sales even amid low gasoline prices testifies to the fact that consumers value not only fuel efficiency but also power performance,” Yuzawa writes. “We believe that the simultaneous downsizing of gasoline engines and increase in vehicle size in the US market has led to demand for HEVs with better acceleration.”
The research team raised its forecasts for HEV sales weightings to 12% of the global market in 2030 (up from 10% previously) and 9% in 2040 (from 5%). In addition, they see plug-in hybrid electric vehicles (PHEVs) getting 14% of the market in 2030 and 17% in 2040 (up from a previous forecast of 9% in 2040).
How have regulatory changes impacted the EV industry?
US lawmakers recently eliminated civil penalties for non-compliance with federal fuel economy rules. Automakers that failed to meet existing corporate average fuel economy (CAFE) standards from the 2022 model year onward are no longer expected to face fines.
Among other things, the legislation also set a September 30, 2025, expiration date for tax credits of up to $7,500 for the purchase of a new EV and $4,000 for a used EV. This credit was previously set to run through 2032.
US rule changes may result in impairment charges for some automakers as the credits they purchased for emissions compliance decline in value. The value of credits is set in negotiated transactions and is difficult to quantify based on publicly available information. Still Goldman Sachs Research expects the medium-term boost to operating margins will be greater than any short-term impairment costs.
In Europe, environmental regulations that affect EV sales are also being eased, though not to the same extent. The European Commission in March softened its stance on carbon dioxide (CO2) emissions targets for 2025, giving automakers a three-year grace period that runs through 2027. The change is anticipated to help manufacturers to meet targets and avoid fines.
What is the EV market forecast for China?
Goldman Sachs Research’s revised global EV market penetration forecasts reflect reduced expectations for sales in the US, Europe, and Japan, but their forecasts for China and India are unchanged. Indeed, Global EV sales rose 21% to 1.16 million vehicles in June of this year. Sales volume in China increased 37% (year over year), while sales in the US and Europe declined 13% and 5%.
As such, EV and hybrid vehicle demand is regionally dependent. While hybrids are getting a boost in the US market, China sales are driving the higher plug-in hybrid sales forecasts.
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