"The Car Market Is Eating Itself" — How Money Works analyzes systemic profit drops and risks for global automakers (2024–2026)

Automakers including Toyota, Volkswagen, GM, Ford, Nissan, Volvo, and Honda have faced massive profit declines in the past year, with Honda posting its first annual loss in almost 70 years and Stellantis recording a $26 billion loss, the largest outside of major recessions. Even luxury brands like Porsche and Land Rover/Jaguar saw profits fall by 99%, and Ferrari shares declined by ~30% since late 2023. Despite robust sales in 2025 (new car sales in America at their highest post-pandemic levels and global sales exceeding pre-pandemic levels), profits collapsed, revealing deep structural problems.

Four key drivers are identified:

1. The "Great Flip Flop" on EVs: Automakers overspent on electric vehicle (EV) investments, chasing Tesla-level valuations — only to find that EV demand was softer than expected. Honda attributed its 2024 loss to billions invested in EVs it now won’t sell; Stellantis wrote off about $25 billion in EV plans; Ford adjusted almost $20 billion and its EV division lost $5 billion in a single year; GM scrapped its plan for full electrification by 2035, writing down $8.7 billion. Early adopters already own EVs, and growing brands are now just dividing the original pool. EV credits have been cut and gas prices have climbed, causing a major industry-wide reset on EV strategies and accounting.

2. Democratization of Performance and Luxury: High-end margins once relied on badge/brand prestige. Porsche’s operating margin in 2024 was 19%, and Ferrari enjoyed unit margins over 50% ($250,000 profit per car), but now performance metrics are democratized. Modern EVs — from Lucid Air Sapphire to Xiaomi SU-7 — often outperform traditional luxury cars like Ferrari Luce, undermining status exclusivity. Even non-EV mass-market cars (e.g., Corvette C8 ZR1X) can outperform European supercars at half the price, making it harder to justify high price tags or flex brand loyalty. The industry may become commoditized, like laptops, where specs matter more than brand.

3. The China Problem: Chinese brands such as BYD and Xiaomi are flooding overseas markets with competitively priced and high-performance cars. Xiaomi outsold Tesla Model 3 in China in 2025, and BYD delivered 2.6 million vehicles last year. China exported over 1 million vehicles to the EU in 2025 (6–7% market share), with exports up 62% year-on-year in early 2026. This threatens European and Japanese brands especially, as nationalism and value erode their historic Chinese market advantage. Australia’s car market serves as a preview for China’s global expansion, as Chinese brands dominate when treated on equal footing.

4. Debt and Delinquency Wall: The average new vehicle price in America increased from $38,000 (2019) to $49,000 (2026), with monthly payments reaching $773 and 1 in 5 buyers paying $1,000 or more. Loan terms average over 90 months; 60-day delinquency rates for subprime auto loans hit 6.9% (a 30+ year high); 31% of trade-ins have negative equity averaging ~$7,200. EVs depreciate faster than ICE (58–59% vs. 45–46% over five years). Longer-lasting vehicles and harder-to-justify upgrades mean fewer deals. Manufacturers themselves are squeezed: Ford carries $163 billion in debt, and interest now consumes half its free cash flow.

Together, these factors create a perfect storm: capital burned for products customers struggle to afford, competition intensifying, and traditional value narratives eroded across segments.