The Automotive Industry: Tariffs, Recalls, and Accelerating Electrification

NEWSLETTER Q1 2026

The first quarter of 2026 has been marked by a series of significant events in the global automotive industry. Trade policy turbulence, regulatory initiatives, geopolitical concerns, widespread recalls and accelerating electrification have collectively shaped a quarter that places high demands on manufacturers, suppliers, and other players across the value chain. 

Below, we outline the most important developments and their potential implications.

The EU’s Automotive Package

At the end of December 2025, the EU presented a comprehensive initiative known as the Automotive Package. The initiative includes, among other things, a proposal to lower the emission reduction requirement for new passenger cars from 100 to 90 per cent, with the remaining portion to be met through offsetting measures such as e-fuels and fossil-free steel. 

The reception has been mixed. The German industry association VDA (Verband der Automobilindustrie) has expressed concern that the industry is being made dependent on factors beyond its control, whilst CLEPA (European Association of Automotive Suppliers) has warned that the package risks creating increased complexity and higher costs rather than pointing the way towards a realistic transition.

Trade Policy and Tariffs

Trade policy has dominated the quarter. President Trump’s tariff threats against Europe initially created uncertainty for European car manufacturers, and Volvo Cars reported a 10 per cent decline in sales during the period from December 2025 to February 2026. During the quarter, the US Supreme Court ruled that the Trump administration had exceeded its powers in introducing the so-called emergency tariffs. At the same time, China has softened its stance in the tariff negotiations with the EU and agreed to allow Chinese car manufacturers to negotiate independently, with the Cupra Tavascan, manufactured within the Volkswagen Group, being the first exemption from the EU’s import tariffs.

The Strait of Hormuz and Rising Energy Prices

Geopolitical concerns have now been added to the trade policy uncertainty. Iranian threats and attacks on ships in the Strait of Hormuz, through which around 20 per cent of the world’s oil passes annually, have caused oil and gas prices to soar and created global market turmoil. These disruptions have affected energy prices and threaten supply chains across the entire automotive industry. According to industry experts, rising fuel prices may also influence consumer purchasing behaviour and, in the long term, increase demand for more fuel-efficient alternatives, provided that prices remain high for an extended period. In the event of a protracted conflict during the summer and autumn months, industry analysts also warn of the risk of fuel shortages and, ultimately, rationing, which could hit the transport sector hard.

Electrification

In parallel with geopolitical concerns, the electrification of the vehicle fleet has continued at a rapid pace. During the quarter, electric cars overtook petrol cars in new registrations within the EU for the first time, according to figures from ACEA (European Automobile Manufacturers’ Association). 

However, a report from EY shows that the electrification of Europe’s heavy goods transport is proceeding significantly more slowly than expected – only 0.3 per cent of the European lorry fleet is electric, compared with China, where 29 per cent of heavy lorries newly registered in 2025 were electric. According to the report, the difference is primarily driven by lower purchase prices, faster decision-making processes and improved quality among Chinese manufacturers, whilst Europe is held back by high costs, uncertainty regarding resale values and insufficient political support.

Extensive Recalls

The quarter was also marked by an unusually high number of large-scale recalls. Volvo Cars recalled a total of nearly 40,000 EX30 models due to a fire risk in the battery. BMW recalled around 875,000 vehicles on two separate occasions, both times due to a fire risk. In addition, Hyundai recalled 569,000 SUVs in the US following defects in the airbags, Toyota recalled 550,000 vehicles following problems with the locking mechanism in the seatbacks, and Nio recalled just over 250,000 electric cars following a software fault. 

The recalls raise questions regarding product liability and quality assurance.

Autonomous Driving

Finally, developments in autonomous driving have taken several steps forward. Waymo raised USD 16 billion in a funding round and is now valued at USD 126 billion, with plans to expand to several new markets, including London. Nissan, Uber and Wayve announced a partnership on self-driving taxis with a planned pilot programme in Tokyo set to start in late 2026. 

Meanwhile, the US National Highway Traffic Safety Administration (NHTSA) has launched a technical analysis of around 3.2 million Tesla vehicles equipped with the FSD (Full Self-Driving) system. The analysis focuses on whether the system can detect when it is not functioning correctly, following several incidents where the driver’s lack of attention was not identified. The investigation coincides with several lawsuits against the company, including a fatal accident in which Tesla disputes liability.

Summary

Overall, the first quarter of 2026 points to a rapidly changing automotive industry, where regulatory initiatives, trade policy tensions and the continued development and expansion of autonomous driving interact in a way that places new demands on all players in the sector.

MAQS Advokatbyrå closely monitors developments in the automotive industry and regularly assists clients with matters related to the sector.