By the 1980s, Detroit’s once titanic carmakers were being upended by rivals from Japan. Ford, General Motors and Chrysler had grown rich selling gas guzzlers, but when oil prices rose and suddenly cheap, fuel-efficient Japanese models looked attractive, they were unprepared. The collapse in sales led to hundreds of thousands of job losses in the automotive heartland of the US.

Now western car manufacturers are making what one former boss calls a similar “profound strategic mistake” as they pull back from electric vehicles (EVs) and refocus on the combustion engine just as oil prices are soaring once again. Experts say the industry’s future – and that of tens of millions of jobs – could be on the line. This time, however, the threat is from China.

Cheap, well-made electric cars from brands such as BYD and Leapmotor are finding buyers across Europe. BYD overtook Tesla as the world’s biggest EV seller this year. Chinese marques are fast seizing the market share once dominated by the likes of Volkswagen, Ford, Peugeot and Renault.

In the US, the pullback has been even more severe. Donald Trump has in effect wiped out the country’s electrification push by cancelling tax credits for consumers and dismantling exhaust emissions rules, which he calls a scam.

Andy Palmer, a former chief executive of Aston Martin, said: “The worst possible response [from the Europeans] is to blink, slow investment and hope the market somehow resets in their favour. It won’t.”

The Iran war makes the west’s EV retreat look even more shortsighted. Soaring oil prices have already prompted fresh interest in electric cars after petrol station prices surged across Europe. The German car dealer MeinAuto said EV-related online traffic had jumped by 40% since the war broke out.

Palmer, who also developed the world’s first mass-market EV in the Nissan Leaf and now chairs a battery technology firm, said: “Chinese carmakers have moved early, built real capability in batteries and software, and are scaling fast. If Europe hesitates now, it will hand rivals a structural advantage that becomes harder and harder to reverse.”

‘Freedom to choose’

The problem is that western manufacturers are doing exactly that, having wiped tens of billions of expected returns from previous EV investment off their books as profits on electric cars remained far below those on petrol and diesel.

Stellantis, the group that owns Peugeot, Vauxhall and Fiat, wrote down €22bn (£19bn) in February, while Volkswagen, Europe’s biggest manufacturer, which owns Audi, Porsche and Škoda, made a similar move last year. The two control more than 40% of Europe’s car market.

In the US, where trade barriers were erected to block the wave of Chinese EVs, Ford took a $19.5bn (£14.6bn) hit, killing off several future electric models and scrapping a battery venture.

These companies are “having a hard time”, said Julia Poliscanova, the director for EVs at the Brussels thinktank Transport & Environment. “They have tariffs in the US, they are nowhere in China [where homegrown brands are booming] … So they’re thinking: ‘Maybe at least in Europe, we can have a few years where we prioritise short-term profits selling petrol and diesel cars.’

“That is probably a valid business view if your term as a CEO finishes in two years,” she added. “That is a stupid view if you still want to be in the car market in 2035.”

At Stellantis, the pivot was especially sharp. Carlos Tavares, its former boss, was among the industry’s loudest champions of electrification, but he was forced out in late 2024. The automotive group has since announced a reset of its plans, giving customers’ “freedom to choose” petrol cars again and launching a fresh spending spree on hybrids, which combine an electric motor and a petrol or diesel motor.

“The only fundamental question for carmakers is how to curb emissions significantly,” Tavares told the Guardian by email. “Those who believe that EVs are not the solution have to explain the ‘how’ without EVs.”

Europe’s manufacturers have yet to do so convincingly. Instead, they blame weak consumer demand for the retreat. The argument goes that high costs and patchy charging infrastructure have slowed EV sales, which accounted for only one in five new cars sold in Europe last year.

BYD, meanwhile, is accelerating, unveiling a new battery that gives its cars a range of 600 miles. It said 250 miles could be injected into its new batteries in just five minutes – albeit using megawatt charging points that deliver more than four times the fastest chargers in the UK.

Even Uwe Hochgeschurtz, a former chief operating officer for Stellantis in Europe, who left just before Tavares, said he would have no problem buying a Chinese model. “The BYDs, the Leapmotors are very good, very nice cars,” he said. “They sell well because they are quite cheap … I would buy one, if I was a normal consumer, I would consider a Chinese car.”

Europe has ‘no direction’

Politicians are unsure which way to turn. Last December, the European Commission scrapped a 2035 ban on selling new petrol or diesel cars. Instead, under pressure from Germany and Italy, it let manufacturers keep making cars with up to 10% of their current exhaust emissions past that date – in effect, a way to keep selling combustion engines.

The EU has said the changes “maintain a strong market signal” for electrification, but Transport & Environment estimates the changes mean a quarter of cars sold in 2035 could still run on fossil fuels.

Hochgeschurtz said Brussels’ mixed messages were holding carmakers back, essentially forcing them to keep all the complexity of multiple power sources. “[Carmakers] try to invest on both sides,” he said. “It’s very costly, but that is their life insurance.”

He added: “China decided decades ago to go electric. The US has decided to go full petrol with the latest administration … Europe has no direction. If you want to lose the car industry, go ahead with the confusion.”

But Pascal Canfin, an MEP who was one of the architects of the 2035 ban and chaired the European parliament’s environment committee until 2024, said attempting to blame politicians was “a scapegoating exercise. [The carmakers] are losing the technological battle with China.”

He said manufacturers had been “lobbying for this for months” before the ban was watered down. “They are creating themselves the instability, the uncertainty that could jeopardise the whole business model again.”

In Britain, carmakers also want ministers to weaken plans to make all new cars zero emission by 2035. “Other major markets have responded and we should do too,” said Mike Hawes, the head of the Society of Motor Manufacturers and Traders, an industry lobby group. “The EU has crossed the Rubicon.”

A Volkswagen spokesperson said the group was “clearly in favour of electric mobility” and had invested heavily in it. “However, this requires a reliable, long-term and binding political framework … the ball is now in the politicians’ court to create the necessary framework conditions to make electromobility a success,” they said.

Stellantis declined to comment.

‘The window is narrowing’

Hochgeschurtz still has hope for western brands. “Don’t forget, they are still dominant,” he said. “And Europeans love their cars. The British love their Jaguars even though they always break down, the Germans love their Volkswagens even though they are too expensive.”

Yet the stakes are higher than simply holding on to British and German consumers. EV sales are surging in India, Mexico and Brazil, where they now make up a higher share of the market than in Japan, according to data from Ember, a thinktank. All are buoyed up by cheap Chinese cars.

Poliscanova said: “Western carmakers do not have the product to sell them, so they are fast losing what used to be their territory in those economies too. These are not just niche, outside markets … they are really growing.”

Rather than hedging their bets with petrol and diesels, she added, manufacturers should go full throttle towards EVs as the Chinese have done to make up the lost ground. That would involve pouring R&D money into the most important part of an electric car: the battery.

Historically, European manufacturers have outsourced battery production, often leaving them dependent on Asian suppliers. BYD, by contrast, makes its own, mines its own lithium and builds its own chips.

Some attempts have been made to build European capability via joint ventures between carmakers and battery producers, but even some of those have stalled. Northvolt, once Europe’s battery darling, went bankrupt last year, and a €7.6bn venture between Stellantis, Mercedes and TotalEnergies shelved plans to build gigafactories in Germany and Italy in February.

Palmer said focusing on one power source would also help carmakers achieve the economies of scale needed to make EVs profitable. He said: “A platform that has to accommodate an internal combustion engine, a plug-in hybrid and a battery electric car is not optimised to anything – it’s the worst of all worlds.”

Part of the answer, he agreed, lay with policymakers – but whatever they do or do not provide, the cost of carmakers pausing on electrification now would be high. “The lesson from history is very clear. It risks repeating, in very close form, the error American carmakers made in the 1980s,” he said.

“They still have the engineering talent, the brands and the manufacturing heritage to compete. But the window is narrowing,” he added. “Expect to see more Chinese cars on our roads in future.”