United States: Honda’s EV Retreat Signals Outlook for US Electrification

What happened: Rather than stick with a declining EV market in the US, Honda Motors took a $15.7bn loss to exit product development.

Why it matters: Billions of dollars have poured into electrification, assuming a shift away from fossil fuels in mobility, power, heating and other areas. That assumption now appears misguided.

What happens next: Savvy investors will prepare for electron scarcity and hedge their bets accordingly.

On 12 March, Honda Motors announced that it would be canceling three planned EVs for the North American market, causing it to eat a $15.7bn loss and putting the Japanese automaker into the red for the first time in its history.

Apart from the initial headline, the response to this announcement was muted — especially so from electrification advocates. Indeed, most of the criticism was directed at Honda for strategic miscalculations.

Yet, if the future of mobility is electric, then why would Honda need to do this?

EVs remain a luxury item whose adoption is extremely sensitive to government policy. Electrification loses its sheen when load growth outstrips load supply.

Geopolitical realignment reveals that cheap energy is by no means a given.

In our view, any claim about the all-electric future must be taken with a very healthy dose of skepticism. Instead, we should think about a future marked by “electron scarcity” where load growth outpaces load supply.

Declining Sales

In 2025, EV sales in the US softened from about 10% of total auto sales to about 6%. The main reason was the elimination of the federal EV subsidies.

It didn’t help that state and federal efforts to mandate EV adoption through fuel standards and other means were also challenged or completely eliminated by the Trump administration. That the supposedly superior product should be so sensitive to policy disruption reveals that consumer preferences remain wedded to what makes sense in absolute cost terms for them.

The average cost of a new EV, even the cheapest models, is still considerably higher than that of the equivalent entry-level internal combustion engine vehicle. They remain out of reach for most consumers, especially with high interest rates. Many people own EVs and love them, but they remain a luxury for a niche group of enthusiasts.

Load Growth

Electrification works when there are electrons to spare. But things change when there is a mad dash for every spare electron possible to build data centers for AI and other computing-heavy businesses. In such an environment, the overriding concern is holding prices down and maintaining system reliability.

The most visible manifestation of this anxiety came during President Donald Trump’s State of the Union address, when he called for future data center developers to put their power behind the meter. Not to be outdone, Maine is poised to pass a new bill banning all new data center development.

Electric utilities will soon face pressure from both regulators and ratepayers to prevent load growth from driving up prices. One method utilities could use to cope with this pressure is to end subsidy and preferential pricing schemes for residential EV charging and recover costs from commercial users, such as EV charging station operators.

The lifetime refueling costs of EVs versus their gas-guzzling counterparts are often cited as the “killer app” for EV adoption, but adaptation to electron scarcity could change that.

Shifting Geopolitics

The United States is energy-independent on a net basis, but it is not an island. Prices for oil, gas and other commodities are driven by global market conditions and shortages from one region, which puts pressure on domestic markets as countries with the means seek to secure alternate supplies.

Further, the cost to generate electrons is also affected by equipment costs, which are far more vulnerable to these shifts than the core energy product. The weaknesses revealed by the prolonged closure of the Strait of Hormuz will prompt a long-term shift in global energy supply calculations. What has been true for the US so far will not remain true forever.

While by no means inevitable, a smart approach for investors would be to assume that electron scarcity will persist for at least the medium term and plan accordingly. Expect efforts to make energy remain affordable to be rewarded, even if they involve fossil fuels and do not attract much fanfare. Recognize that big money will chase large sources of reliable power and will pay a premium for clean electrons.

Finally, treat prognostications about this or that future as what they actually are: mere guesses. Periods of abundance are fertile ground for all manner of silliness that fall apart quickly when they collide with hard reality.