Looking Ahead to 2026

Uncertainty is catching up with the facts on the ground.

August 14, 2025

Michael Robinet

The popular Toyota RAV4 is one of the vehicles imported to the United States after being manufactured in Canada. (Toyota)

September is unofficially known in the industry as a key forecasting month. It’s when several suppliers lock in their revenue forecasts for the next year. As we approach 2026, there are still several balls in the air with respect to the trajectory of the light vehicle market. Looming U.S. tariffs, negative economic and geo-political shifts, and the impact of changes to U.S. vehicle emission legislation have all brought with them a cloud of uncertainty that hovers over the industry. An industry that requires greater planning clarity, not less.

Let’s start with the tariffs. As of this writing, the major vehicle and parts importers outside of North America have agreed to 15% U.S. tariffs for vehicles and parts. In the case of Japan and the European Union, this is 12.5 percentage points higher than 2024 levels. In the case of South Korea, it’s 15 points more, as there was a free trade agreement in force. While these framework

Driving an agreement with the U.S.’s North American neighbors will be much trickier, given the USMCA and a higher tariff on vehicles being imported from Canada and Mexico (currently 25% on the imported value less any U.S. value add). In many cases, this is effectively a higher tariff than the new 15% tariffs from the aforementioned overseas trading partners, providing a temporary advantage.

Additionally, how imported USMCA parts will be treated is still in the air. How does a supplier engage and determine future sourcing strategies? Having no understanding of future levies paralyzes an industry that requires long-term trade stability to drive investments. Adding to the parts malaise are the steel, aluminum and (now) copper tariffs at 50% on base metals and derivatives. Building forecasts and long-term planning in this tariff-driven environment is treacherous at best.

One area which now enjoys increased certainty is the new emissions legislation from the recently passed U.S. OBBBA bill. The bill sets forth a more lenient direction for future emissions targets as well as ending most EV purchase credits. OEMs now gain significant flexibility as penalties for non-compliance have essentially ended. While the new bill provides clarity, the industry still deals with significant investments in EV final assembly, battery/critical mineral production and all the associated electrical content. The level of underutilized capital associated with EVs is extreme and will impact the financial health of OEMs and suppliers alike later this decade.

For 2026, the S&P Global Mobility North American Light Vehicle Production Forecast outlines a roughly 4% decline in volume when compared to 2025, which was a volatile year at best. In question are the potential impact of tariff-driven inflation, shifts in currency rates, and how relatively high interest rates will impact affordability. From a tariff impact perspective, we are in uncharted territory for the next couple of years. While production is slated to decline slightly, there is still a low level of new vehicles launching in 2026 compared to prior years. This lack of new product is driven by rescoped or cancelled EV launches. In a recent review of the S&P Global forecast, upwards of 70 EV launches, almost 40% of all EV launches, have been pulled from the outlook from a year ago. This level of movement within the forecast underscores the level of uncertainty. Welcome to the new norm.