BofA's Annual Auto Outlook Predicts Volatile Road Ahead For Industry

Bank of America’s just released Car Wars report paints a less than rosy picture for the automotive industry, highlighting a period of profound transition and volatility. Despite unprecedented investments in electric vehicle development, adoption rates have failed to come close to sales expectations, as I’ve been telling you for years. EVs currently represent only 8% of annual U.S. auto sales, a figure far below the projections that once drove aggressive product plans and billions of dollars spent. The BofA report attributes this shortfall to persistent challenges including the limited charging infrastructure, high initial costs, and range anxiety, all of which continue to suppress consumer demand for electric models.

This shifting landscape has led automakers to scale back their EV launch plans significantly. The report forecasts only 71 new EV nameplates to be introduced in the next four years, a sharp decline from the previously anticipated 140. This regrouping reflects not only consumer hesitancy but also the impact of changing regulatory incentives and broader economic pressures. Bank of America Securities analyst John Murphy emphasized the scale of this shift, noting that “the unprecedented EV head-fake has wreaked havoc on product plans,” and warning that the next four years will be marked by deep uncertainty and volatility in product strategy.

For leading automakers such as General Motors and Ford, the implications of this pullback could be significant. Murphy warns of potential multi-billion-dollar write-downs on EV investments that were made in response to earlier policy initiatives and market optimism. I have been telling you this also for a while.  The initial push for electrification gained substantial momentum during the Biden administration’s focus on reducing greenhouse gas emissions but evolving economic and political factors have since stalled that progress, leaving automakers facing tough financial decisions. Murphy’s assessment is clear: “The money has been spent. You can’t get it back.”

Compounding these challenges is a overall dramatic slowdown in new vehicle introductions across the industry. In 2024, the industry saw only 29 new model launches, marking the lowest level in decades. Projections for future years are similarly constrained, with total new model launches expected to reach just 159 over the next four years, well below the traditional average of over 200. Showroom replacement rates, a critical driver of dealership traffic and industry growth, are expected to fall to 11% in 2026 and 2027, down from the typical 15%. Even Tesla, often seen as an outlier in the industry, is forecast to have a replacement rate of 22.4%, but Murphy expressed skepticism about whether Tesla will deliver on those plans given its historical reluctance to launch fully new generations of models.  Elon Musk has become famous for new Tesla introductions of vehicles that either didn’t happen or were very delayed, and usually not at the expected price.

Amid these challenges, internal combustion engine models are regaining their role as a stabilizing force in the automotive business. Murphy notes that these vehicles remain the most profitable offerings for many automakers and will be critical in generating the capital needed to fund future investments in electrification, autonomous driving, and connectivity. “We think that automakers must lean heavily into their core ICE product portfolios to generate the capital to fund the uncertain future,” he said. SUVs and trucks in particular are expected to serve as a lifeline, enabling companies like Ford, GM, Stellantis, and to a lessor degree, Toyota, to maintain shareholder returns while navigating a rapidly evolving market.

The report also points to a leveling off in the crossover segment, which has driven much of the industry’s growth over the past two decades. This suggests that the product mix of the future may require further adjustments to align with changing consumer preferences. At the same time, China—once a key player for the global auto market—faces its own challenges. Murphy highlighted a combination of oversupply, heightened competition, and geopolitical tensions that could lead to “massive consolidation” in the Chinese market. Last year, net exports from China topped 7 million units, a surge driven in part by intense price competition and slowing domestic demand. Murphy cautioned that while there may be opportunities for Chinese automakers to expand abroad, current geopolitical and economic conditions are likely to limit their presence in the U.S. for the foreseeable future.

As the industry braces for what Murphy described as “a rough ride” over the next few years, the Car Wars report remains cautiously optimistic about the potential for profitability. The key, according to Murphy, lies in leveraging the profitability of core ICE products while carefully managing the transition to electric and connected vehicle technologies. “In the near term, it’s leveraging the connectivity, going after what we know is a very lucrative part of the value chain,” Murphy said, noting that automakers will also need to revisit their relationships with consumers and dealers to capture future opportunities. With careful planning and disciplined execution, the report suggests that while the path ahead is uncertain, automakers have a chance to emerge stronger and more resilient in the face of profound industry change.