EV Flip‑Flop, Brand Erosion, China Competition Signal Auto Crisis

Name: WTF Is Happening To The Car Market?
Uploaded: 2026-06-12T13:24:12+00:00
Duration: 22 min 52 s
Channel: How Money Works
Description: Summary and key takeaways on WTF Is Happening To The Car Market?: Summary & Key Takeaways, covering The Current State of the Auto Market Major manufacturers

How Money Works

Jun 12, 2026

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22 min video

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Major manufacturers are posting record losses despite high sales volumes. Honda recorded its first annual loss in nearly 70 years, while Porsche’s operating margin fell to about 19 % in 2024 after a 99 % profit drop. Ford wrote down $19.5 billion and now carries $163 billion in debt. The paradox of booming unit sales and collapsing profitability signals a deep structural shift.

The Four Pillars of Industry Decline

The Great Flip‑Flop

Shareholder pressure forced many firms to chase “Tesla‑level” valuations, prompting massive, premature investments in electric‑vehicle (EV) production lines. Demand proved softer than expected; early adopters have already bought, and new buyers are not converting at projected rates. Companies are now resetting balance sheets by writing down under‑utilized EV tooling and research, while maintaining dual production lines for EVs and internal‑combustion engines proves capital‑intensive and inefficient.

Erosion of Brand Value

Performance metrics such as 0‑60 times and horsepower have become democratized. Luxury and performance badges can no longer command massive premiums when mass‑market or non‑traditional rivals offer comparable specs. “Most modern cars are incredibly fast by historic standards and performance EVs in particular all basically have the same spec sheet,” the analysis notes, suggesting the auto market is trending toward the computer market, where component specs and price outweigh brand differentiation.

The China Problem

Chinese firms like BYD and Xiaomi leverage cost‑competitiveness and vertical integration to capture global market share. BYD sold 2.3 million battery‑powered cars in 2025, holding roughly 20 % of the global EV market. European and Japanese automakers are losing ground in China as local alternatives gain favor and consumer nationalism rises. Historically, China has allowed many EV startups to fail, leaving only the most competitive to expand abroad.

The Wall of Debt

Average new‑vehicle transaction prices rose from about $38,000 in 2019 to $49,000 today. Consumers face “peak refinance” as cheap‑money loans expire, pushing them into higher‑interest financing on higher‑priced cars. Loan terms now average over 90 months, and 31 % of trade‑ins carry negative equity, averaging $7,200 underwater. Subprime delinquency hit 6.9 % in January 2026—the highest in three decades. High interest rates also strain manufacturers; for some, interest on debt consumes up to half of free cash flow.

Economic Implications

The auto market acts as “a canary in the coal mine” for the broader economy. Longer loan terms and rising delinquency rates foreshadow stress in consumer credit markets. As the sector’s profitability erodes, the ripple effects could dampen economic growth across related industries, from construction to finance.

Hard Facts at a Glance

Average monthly payment: $773 in Q1 2026; 1 in 5 buyers pays $1,000 +.
EV depreciation: 58‑59 % over five years versus 45‑46 % for internal‑combustion models.
Stalantis: Recorded the largest loss for an automaker outside a major global recession.

“For the past 100 years, the car market, alongside the construction industry, has been the canary in the coal mine for the wider economy.”

The convergence of aggressive EV pivots, brand homogenization, Chinese competition, and mounting debt creates a perfect storm that could reshape the automotive landscape for years to come.

Takeaways

Major automakers are posting record losses despite high sales volumes, highlighting a profitability crisis.
Premature EV investments have led to costly write‑downs as demand falls short of optimistic forecasts.
Luxury brand premiums erode because performance specs have become widely available across many models.
Chinese manufacturers are gaining global market share through cost efficiency and vertical integration.
Rising vehicle prices, longer loan terms, and high delinquency rates are building a debt wall that threatens both consumers and manufacturers.

Frequently Asked Questions

Why are EV manufacturers writing down the value of their tooling?

They are writing down tooling because the anticipated EV demand has not materialized, leaving factories under‑utilized. The mismatch forces firms to reduce the book value of expensive equipment to reflect its lower economic usefulness.

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Personal Finance Budget Planner Notebook Recommended

Helps users track high monthly car payments and manage debt, which is essential given the rising delinquency rates and negative equity mentioned in the video.

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Book On Automotive Industry History

Provides context on the evolution of car manufacturing and market cycles, helping the reader understand why the current 'Great Flip-Flop' is a significant historical shift.

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Automotive Engineering And Design Book

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Full Transcript YouTube

Over the last year, the car market has kind of 
been going through something. Toyota, Volkswagen,  
GM, Ford, Nissan, Volvo, and almost every other 
bigname car manufacturer has seen widespread  
disruptions alongside massive profit drops. 
And they were the lucky ones. Honda recently  
posted its first annual loss in just under 70 
years of operations. And not to be outdone,  
Stalantis recorded the largest loss from an 
automaker outside of a major global recession.  
Embodying his company values, the Stalantis CEO 
broke down a turnaround planned that involved  
going allin on V8, which was announced exactly 
two days before the start of the war in Iran. Now,  
I know you guys don't want to hear me say tariff 
disruption, consumer debt, and the K-shaped  
economy for another 15 minutes this week. And 
the well uh good news is that there is a little  
bit more going on here. Even at the top end of 
the market, Porsche saw its profits drop by 99%,  
encouraging them to sell off the ultra premium 
Bugatti brand Land Rover and the artist formerly  
known as Jaguar also saw profit fall by 99%. 
And even the king of the K, Ferrari themselves,  
have seen their shares decline by around 30% since 
the last time we covered the car market on this  
channel just 6 months ago. Of course, this stock 
trend was not helped by the Ferrari Magic Mouse,  
but that's actually worth addressing later on. 
For now, I know you might all be getting some  
sort of schadenfreude, seeing these companies 
start to struggle after taking advantage of  
accommodating economic conditions to screw 
consumers for the past 5 years. But like always,  
it's important to understand what is actually 
happening behind the scenes in these companies  
to see how it is going to impact you. An auto 
company with facilities here in Indiana tonight  
is reporting losses of $2.7 billion. Profits 
at German car maker Porsche plunged by nearly  
96% in the first nine months of this year. 
US auto giant Ford says it's taking a $19.5  
billion right down as it kills off several all 
electric models. BYD says it sold 2.3 million  
battery powered cars globally in 2025. Car 
payments are becoming harder to afford for  
many families as rising costs for essential 
items continue to strain household budgets.  
There is a reason why I spend so much time on this 
channel talking about cars, despite personally  
driving a 15-year-old CRV, and that's because for 
the past 100 years, the car market, alongside the  
construction industry, has been the canary in the 
coal mine for the wider economy. A healthy car  
market normally employs a lot of people in good 
paying union jobs. It helps a country maintain  
its industrial base. And on the opposite side of 
the same coin, if people are buying lots of cars,  
it's a clear indication that they can at the very 
least qualify for a loan to make seven years of  
irresponsible monthly repayments. Car makers can 
help to both build a healthy economy and indicate  
its health at the same time. But they can also do 
the opposite. So to put everything into context,  
car sales in 2025 were actually at their highest 
level since the pandemic here in America.  
Worldwide, the number of new cars sold fully 
recovered and actually exceeded pre-pandemic level  
sales, which should be cause for celebration, 
right? What's more is that because the average  
new car has become so much more expensive, 
even after adjusting for inflation, the amount  
of actual revenue car companies are making has 
never been higher, even though unit volumes are  
still down from their all-time peak. But then 
the question is why are all of these companies  
doing so badly at the same time that the market 
itself is theoretically doing better than ever?  
Growing sales naturally shouldn't go handinhand 
with collapsing profit, right? Or perhaps an even  
better question is if this is what is happening 
to these companies during a good sales year,  
what's going to happen to them when sales 
actually slow down again like what is kind  
of already happening right now? Well, there are 
really four big problems beyond the immediately  
obvious that are hurting car makers today. And the 
first is what I like to call the great flip-flop.  
A name that I really hope catches on. If you go 
back through almost every one of those headlines  
talking about massive profit haircuts, you'll 
find the car makers themselves all citing the  
same thing, electric vehicles. Now, there are two 
very big reasons why they are trying so hard to  
point this out, and we will get to that soon. But 
beyond some accounting trickery, this is still an  
industry-wide problem. Honda's first loss since 
1957 came with the company pointing straight at  
the billions it had poured into getting ready 
to build electric cars it now isn't going to  
sell. Stalantis turned a $5.5 billion profit 
into a $26 billion loss. And around 25 billion  
of that was write downs as it quietly backed out 
of its EV plans. Ford booked nearly $20 billion  
in adjustments and admitted its electric division 
alone lost almost 5 billion in a single year. Even  
the ones that stayed in the black still took a 
hit. GM turned a $2.7 billion profit for the year,  
but quietly scrapped its plans to go all electric 
by 2035 and wrote down around $ 8.7 billion of EV  
investment. For the last decade, a lot of these 
major car manufacturers thought they were playing  
a game of catch-up to the EV leaders in the space, 
pushed by significant investor pressure from  
shareholders that wanted Tesla level valuation. 
But a lot of them are now realizing that the  
demand they were all chasing is a lot softer 
than they were expecting. The early adopters  
that wanted an EV have already purchased one. 
And as the market is flooded with more options,  
it isn't necessarily driving people to make 
the switch. It's just dividing the original  
pool of customers between more brands. According 
to research from Cox Automotive, even existing EV  
owners are considering a switch back to internal 
combustion engine or hybrid vehicles. Across the  
entire industry, outside of the purely electric 
automakers, most companies have been quietly  
rolling back their bold projections that 
they would be a purely EV automaker within  
a decade. In America, in particular, this has been 
accelerated by a cut down in EV credits and, well,  
up until recently, some pretty cheap gas that 
made it a lot easier to keep the Canyon Narrow  
on the road. So, the industry as a whole has seen 
where this is going and they are all announcing  
major resets on their EV strategy. Now, to be 
completely fair and put this back into context,  
part of that rethinking process is rethinking all 
of the book value they assigned to the tooling and  
research that went into developing EV platforms 
and building the plants to produce them. A plant  
that was supposed to stamp out a million electric 
F-150s a year is just worth a lot more than one  
that is only producing 10,000 in reality. A lot 
of the companies that have announced those 99%  
profit drops are really just taking this year to 
readjust their balance sheet and record a loss  
because they know everybody else in the industry 
is doing the same thing so they won't look quite  
as bad. They are kind of like the zebra crossing 
the river. They know they need to do it and  
they know there are angry shareholders in the 
water. But if they all do it at the same time,  
it's much less likely that they will 
be singled out. Now, on the other hand,  
I know this makes it all sound like nothing but 
an accounting illusion. But behind all of this,  
there is still a serious problem. These write 
downs still represent real money that companies  
piled into a technology and capital infrastructure 
that they thought would be the future and generate  
them substantial returns, but turned out just 
to be underutilized and rapidly depreciating,  
which is probably an important lesson to keep in 
mind for no other reason in particular. Anyway,  
on top of this, the ongoing cost of running 
research, development, and production lines for  
both EVs and internal combustion engine vehicles 
is also not insignificant. Companies like to share  
parts and processes where they can, which is a 
lot more difficult when they have different models  
operating off an entirely separate drivetrain. 
Now, maybe this would all still be worth it  
if they were growing sales by catering to new 
markets, but this is also happening while unit  
sales are still below where they were before the 
pandemic. So, even though they might be selling  
more expensive cars, they aren't exactly opening 
up new markets. It sounds bad, but so far this is  
only the flip. The flop is still playing out. In 
response to these market trends, some companies  
boldly and loudly pivoted back to expanding 
their portfolios of big gasg guzzling cars,  
just in time for gas prices to become a major pain 
point all over again. Now, you might logically  
think that anybody illogical enough to spend 
six figures on a new V8 Jeep Wagon Ear wouldn't  
be the first to feel the pinch of gas prices, but 
well, I made a promise to keep irrational consumer  
behavior until the end of this video. For the car 
companies themselves, ongoing R&D is just part of  
being a car manufacturer. It is by its nature 
a highly capital-intensive business and most  
manufacturers and their shareholders are prepared 
for this by itself even if a lot of it has been  
wasted chasing market trends. But there are also 
other headwinds hitting them at the same time  
making it a lot scarier to deploy this capital. 
So it's time to learn how many works to find out  
why the car market is eating itself all during an 
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So, the great flip-flop has left most major car 
manufacturers bleeding cash on a technology bet  
that hasn't paid off, at least not yet. But the 
second big change is what is happening to badge  
engineering. One of the most underappreciated 
threats to these companies right now is the slow  
erosion of what has historically been their 
most valuable asset. High-end luxury cars and  
especially performance cars are more expensive 
to manufacture than regular mass market cars,  
but not by as much as you might expect. So, 
the significant markups they can charge come  
overwhelmingly from their badge and the brand 
value people give to it. The margins on cars  
from Porsche, Ferrari, JLR, and up until recently 
Tesla were huge. Porsche's's operating margin was  
sitting around 19% in 2024. Ferrari has enjoyed 
unit margins of over 50% on most of their models,  
meaning that for every car they sell, they are 
making a unit profit of almost a quarter of a  
million dollars. Of course, a lot of this is used 
to fund their racing teams, their R&D, and their  
other branding. But even after that, they have 
run off a profit margin several times greater  
than most ordinary car makers. Now, more than 
almost any other product, people have historically  
been willing to spend money on cars as a status 
symbol, even when the marginal utility was well  
into the territory of diminishing returns. But 
crucially, there was always still something there  
to justify it. A Porsche GT3 may be twice the 
price of a regular Porsche 911, which is twice  
the price of a BMW M3, which is twice the price 
of a BMW 320i. And for 99% of on-road driving,  
they are all going to get around just as quickly 
while also displaying some level of European  
luxury. But the top of the market is willing to 
pay 8 times as much, probably in addition to some  
significant dealer markups because in theory, the 
GT3 has better performance capabilities than all  
of these other cars. So they could save 2 seconds 
a lap on the track days they will never go to. The  
same is true for people who wanted to be on the 
cutting edge of luxury or even new technologies.  
The problem is now capabilities are getting 
democratized. Most modern cars are incredibly  
fast by historic standards and performance EVs in 
particular all basically have the same spec sheet.  
1,000 plus horsepower, 0 to 60 in 2.5 seconds, 
and a 100 kWh battery despite having huge price  
differences. The Ferrari Luche is kind of just a 
conveniently timed encapsulation of this. In the  
past, Ferrari clearly had a performance edge over 
most mass market cars. But the Luch is by most  
metrics going to be slower than similar offerings 
from Porsche, Tesla, and even the phone maker  
Xiaomi. The Lucid Air Sapphire will beat the Luché 
on almost every metric that matters. More power,  
faster, longer range for $391,000 less. And they 
are both equally likely to leave you locked out on  
the side of the road. Now, I know it's hard to 
reverse engineer irrational consumer behavior,  
and people don't buy cars off a spec sheet, 
especially in markets like high-end performance  
cars, which are clearly emotional, not rational 
purchases. But this still really matters because  
in the past, people could at least justify buying 
a very expensive performance car because this was  
the only way to access those capabilities. This 
is just like someone buying a $5,000 handbag and  
talking about craftsmanship. It's clearly 
primarily motivated by the flex, but there  
is at least something there to justify it. The 
only other way people will be able to justify a  
luch over a Model S Plaid is because they will 
like the badge, which still works obviously,  
but it won't work forever. And eventually, people 
will just be flexing how irrational they really  
are. Even outside of EVs, the democratization 
of performance is making it really hard for  
high-end manufacturers to sell their capabilities 
alone. Modern Corvettes are faster than almost any  
European supercar at a fraction of the price. 
A C8 ZR1X will be a new Lamborghini by almost  
any performance metric for half the price. So, 
the argument for spending significantly more is  
getting even harder to justify. Now, I know there 
are still a lot of rich people buying a lot of  
expensive cars, but in these markets, the simple 
idea that someone could pull up having paid half  
the price for a comparable car is a surefire 
way to deflate the egos these cars were there  
to support in the first place. Even in the more 
sensible segments of the market, the same kind  
of thing is happening all the way down to the base 
model of cars as well. For most people, their cars  
are basically just appliances that are getting 
harder to differentiate. Most manufacturers now  
have efficient engines, Apple CarPlay, and a 
decent safety rating with interiors that would  
be considered luxurious just 10 years ago. The 
channel Modern MBA did a great deep dive video on  
this corner of the market recently. And one of his 
big points is that even the biggest manufacturers  
are really just assembling thirdparty components 
from companies like Bosch, Harmon, and  
Phillips. Meaning that it is becoming harder to 
differentiate between cars to people who treat the  
purchases like any other appliance. what has the 
best features for the given price and financing  
deal. Hot take alert and feel free to come back to 
this video in 10 years time to call me an idiot,  
but there really isn't anything stopping the car 
market from going the way of the computer market  
where it becomes a lot harder to flex a particular 
brand when they are all using roughly the same  
components. Most people don't really care if you 
have an Acer or an HP laptop. They care about the  
specs and the components. And as cars become more 
appliance-like, there is really nothing separating  
them from the same fate. Which leads us neatly 
onto the China problem. We briefly touched on it,  
but Chinese EVs and hybrids are here and their 
cost to performance ratio is very hard to compete  
with. Now, in America, this hasn't mattered yet 
because trade barriers keep us isolated to the  
point that we really do live in our own little 
car bubble. A lot of the most popular cars in  
North America simply don't exist outside of North 
America. Seeing an F-150 in Europe, for example,  
is extremely rare. This is either because our 
cars are too large for roads in other major  
markets of Europe and Asia, too inefficient for 
local laws, or because there are just better,  
cheaper local alternatives. Now, that's typically 
been fine for us at least, because the USA is such  
a large market that even foreign automakers 
set up operations here to get inside the  
bubble. But there are a lot of manufacturers, 
particularly those from Europe and Japan,  
that depend far more heavily on exporting cars 
beyond their home country. And for a long time,  
the single largest and fastest growing market was 
China itself. European automakers in particular  
enjoyed several years of selling high-end cars to 
status-driven consumers in the rapidly developing  
Chinese economy. And for most of that time, they 
really didn't have any competition because locally  
produced Chinese cars were almost embarrassingly 
cheap, poorly engineered, lacking in features,  
and most importantly, they couldn't compete 
with the status of the European luxury brands.  
But that has clearly changed. Even despite being 
largely protected from Chinese competition on  
their home turf, European automakers have run 
into a serious problem trying to sell their cars  
into China because local alternatives 
are now far more competitive. Xiaomi,  
a company that didn't even have a car division 5 
years ago, delivered over 400,000 vehicles in its  
first full year of making cars. And the base model 
outsold the Tesla Model 3 in China in 2025. And on  
the point of badge engineering again, a Porsche 
Tekcon is still more of a status symbol than a  
Xiaomi SU7 despite looking almost identical. But 
in some cases, that's actually working against  
the European automakers. Just like Americans like 
to buy American cars, a level of nationalism is  
pushing some Chinese consumers to buy Chinese 
cars. Even before considering their exports,  
the rise of Chinese automakers have hurt the 
incumbent players that are losing one of their  
most valuable markets. But well, it would also 
be irresponsible not to include their exports  
because they are coming. According to data 
from the Rodeium Group, China exported over 1  
million vehicles to the EU in 2025, accounting for 
around 6 to 7% of the market. And in early 2026,  
those exports accelerated by 62% yearonear. BYD 
alone delivered 2.6 million vehicles last year,  
commanding roughly 20% of the global EV market. 
Australia is actually a really interesting case  
study here because they are a nice little guinea 
pig for the larger American market given some  
important similarities. Big roads, consumers 
with strong purchasing power and a surface  
level cultural similarity to America. But because 
they no longer have a local car industry, Chinese  
manufacturers are treated the same as every other 
manufacturer and they are dominating because of  
their cost competitiveness. Now, of course, there 
is the argument that China has subsidized these  
auto manufacturers to make them as competitive 
as they are today through co-investment and  
vertically integrated industrial planning. This is 
absolutely true, but it's also only fair to point  
out that American and European automakers are also 
the beneficiaries of generous government policy.  
And for what it's worth, China has also let a lot 
of their EV manufacturers fail. China has actually  
let more EV companies fail than America has had 
automakers in its entire history. We are now just  
seeing the ones that have actually survived. Now, 
all of these problems would be a serious threat to  
a healthy car market. But the fourth big problem 
is that over the next few years in particular,  
a wall of debt is likely to mean they are fighting 
for a smaller slice of a smaller pie. Now, we all  
know people are spending irresponsible money 
every month so they can drive a car they can't  
reasonably afford. But there is one big piece 
of this that often gets ignored. We are about to  
hit peak refinance. The average transaction price 
for a new vehicle in America has gone from around  
$38,000 in 2019 to just under $49,000 today. 
And a lot of the car loans from the cheap money  
era are now expiring. Loans that were written 
when interest rates were near zero and monthly  
repayments were a lot more manageable. This means 
if people want to upgrade into a similar vehicle,  
they are going to be paying a higher interest rate 
on a higher base price, making deals significantly  
harder to do. According to data from Lending Tree, 
the average monthly payment on a new vehicle hit  
$773 in the first quarter of 2026, and one 
in five buyers now commits to a payment of  
$1,000 or more each month. Of course, people will 
pay irresponsible amounts, but there are still  
fundamental limits to what loans can be given with 
any hope of repayment. Another underappreciated  
factor is that these financing realities are just 
making newer, more expensive vehicles harder to  
sell. Again, people will sign up for some pretty 
irresponsible lending if they see they are getting  
themselves into a better car. But, as we saw 
earlier, car features that most people care  
about have pretty much plateaued while prices and 
interest rates have increased. Higher repayments  
for a downgrade, even if it is just the trim 
level, is a lot harder to get people excited about  
at a dealership negotiating table. The industry's 
uh solution to this has basically been to just  
make the loans longer. Effective loan terms after 
refinancing now average over 90 months, or 7 1/2  
years of repayment on a depreciating asset. In 
January 2026, the 60-day delinquency rate on  
subprime auto loans hit 6.9%. the highest level 
recorded in more than three decades of tracking.  
And roughly 31% of trade-ins towards new vehicles 
now carry negative equity with the average  
underwater amount sitting at around $7,200. EVs in 
particular are now depreciating faster than their  
internal combustion engine equivalent, averaging 
around 58 to 59% depreciation over 5 years  
compared to roughly 45 to 46% for IC. And beyond 
that, cars are statistically lasting longer,  
too. So, it's harder to make a new deal happen 
while also easier to just keep driving the same  
vehicle for longer, which for what it's worth is 
exactly what people should be doing as long as  
it's still safe. People can't afford to trade up 
and the cars they're sitting in are in many cases  
just as well equipped as anything they would be 
able to trade into with the same repayment. The  
final thing is that higher interest rates are also 
hurting manufacturers themselves just as much as  
their customers. Most large auto manufacturers 
carry a lot of debt to finance their financing  
divisions, but also to fund their ongoing, highly 
capital-intensive operation. Ford, for example,  
has closed $163 billion worth of debt on their 
books, with 22 billion of that being for their  
core business functions. Just the interest on that 
debt now accounts for as much as half of their  
free cash flow. Now, individually, these are all 
problems that car manufacturers are worried about,  
but together it is a bit of a perfect storm. 
Companies are burning capital they are running  
out of for products their customers are 
struggling to afford in a market that is  
getting more competitive and harder to stand 
out in. It sounds bad, but it gets worse. This  
is just what has been happening recently. So, 
if you want the full breakdown, go and watch  
this video next. And don't forget to like and 
subscribe to keep on learning how money works.

Help & FAQ

How Much Longer Can We "Hide" The Inflation?

How Money Works

Jun 20, 2026

The Four Pillars of Industry Decline

The Great Flip‑Flop

Erosion of Brand Value

The China Problem

The Wall of Debt

Economic Implications

Hard Facts at a Glance

Takeaways

Frequently Asked Questions

Why are EV manufacturers writing down the value of their tooling?

Who is How Money Works on YouTube?

Does this page include the full transcript of the video?

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