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It’s safe to say that 2025 was a challenging year for automakers.
For one, tariffs began to weigh on profits while the average cost of a new vehicle reached a record high of over $50,000 in September. OEMs are also facing declining electric vehicle sales after billions of dollars of investments in electrification that so far, haven’t fully paid off.
The current climate has prompted some automakers to re-evaluate their mid-to-long-term product planning to meet evolving customer demand, while simultaneously working to maintain their profits.
As part of our annual auto industry outlook, WardsAuto spoke to analysts about what automakers may expect in 2026 in a rapidly changing market. While many experts agree that automakers have historically been resilient to market changes, challenges still lay ahead.
Here are five of the top trends experts said are likely to shape the industry in 2026.
1. Ford, GM will take advantage of any changes in fuel economy standards
U.S. automakers Ford Motor Co. and General Motors rely on the sales of full-size trucks and SUVs for a majority of their revenue. These vehicles are also widely popular with consumers and that’s not likely to change in 2026. With the Trump administration planning to roll back corporate average fuel economy standards, automakers can continue to churn out these larger models to meet demand and maintain profits in 2026.
“I think the OEMs are going to address and better balance their powertrains,” EY Americas Automotive Leader George Lenyo said to WardsAuto. “The CAFE standards are going to allow them to do that, it allows them to focus on customer preference.”
With the higher costs of EVs, internal combustion powered vehicles will continue to be a more affordable option for many car buyers and automakers are likely to invest to boost production, according to Lenyo.
Last June, for example, GM announced a $4 billion investment in U.S. manufacturing to boost output of both ICE vehicles and EVs to meet demand. The automaker is also investing $888 million in its Tonawanda Propulsion plant in Buffalo, New York, to support production of the next generation of its V8 gas engine for its full-size trucks and SUVs.
Meanwhile, in September, Stellantis canceled its fully-electric Ram pickup due to slowing demand for electric trucks in North America. The Ram EV was originally slated to debut this year, but it is being replaced with a range-extended, hybrid version.
“Right now, customer preference is leaning 62% towards ICE in the U.S. and only 9% to EV,” said Lenyo. “So that’s a pretty stark difference between where you want to put your capital and where you want to invest.”
GM’s domestic rival Ford is pursuing a similar strategy. In December, the automaker announced a major shift in its electrification plans to focus on extended-range hybrid vehicles, more affordable and smaller electric vehicles, and new truck models powered by efficient internal combustion engines by 2030.
“This is a customer-driven shift to create a stronger, more resilient and more profitable Ford,” said Jim Farley, Ford’s president and CEO, in a statement last month. “The operating reality has changed, and we are redeploying capital into higher-return growth opportunities.”
2. Hybrid vehicles will bridge the gap towards more widespread electrification
Although policies have shifted and EV sales have started to cool after a key tax credit expired, automakers are not wholly abandoning their electrification strategies. On the contrary, many are investing in hybrid models that could more affordably electrify their lineups.
The hybrid vehicle segment in the U.S. is expected to grow rapidly over the next decade, according to EY’s Mobility Lens Forecaster released last September. Hybrid vehicles are expected to account for 34% of all passenger vehicles sold by 2034, with sales predicted to climb to over 3 million units in the U.S. this year, according to EY’s data.
“The reduction of the CAFE standards are going to allow the domestic OEMs to rebalance their portfolio and their capital spend,” Lenyo told WardsAuto. This rebalancing, according to Lenyo, will be less towards EVs and more towards efficient ICE and hybrid models.
To prepare for the growth of the hybrid vehicle segment, some automakers have already made significant investment commitments to boost production to meet growing demand over the next several years. Several OEMs, such as Honda Motor Co. and Ford Motor Co., even pivoted their electrification strategy to prioritize hybrid technologies.
How 3 automakers adjusted investments in 2025
Honda, Toyota and Ford all found ways to shift money toward hybrid vehicles last year.
3. Automakers will seek to further mitigate tariff impacts in 2026
A slew of new tariffs on imported auto parts intended to boost domestic production have prompted some automakers to re-evaluate their global supply chains.
General Motors, for example, reported in October that its Q3 net income tumbled 57% year-over-year largely due to tariffs, which cost the company $1.1 billion during the quarter. Weeks later, Reuters reported that GM directed thousands of its suppliers to scrub parts from China from their supply chains.
But unraveling established OEM supply chains is a difficult undertaking. Automakers manage a complex network of established Tier 1 suppliers outside of the U.S., including in Mexico and Canada, and it typically takes three to five years to launch a new vehicle. Additionally the Trump administration’s frequently changing tariffs have only complicated industrial assessments, as long-term tariff policy remains unclear.
“It’s hard to move these plants right,” said Lenyo. “‘Can you get a factory moved before the next administration?’ [That] would probably be the question if I was an executive at an OEM, that I would be asking myself.”
Ryan Robinson, automotive research leader at Deloitte, told WardsAuto tariff-related questions are now morphing into a larger conversation about what the United States-Mexico-Canada Agreement will look like going forward. He said that OEMs have so far been able to absorb a majority of the tariffs last year, but whether automakers will be able to do so in 2026 and beyond remains unclear.
“There has been that kind of threshold point beyond which the OEMs just felt that they couldn’t take any more of those tariff-related cost increases, that’s starting to flow through to the consumer,” he said. “And that’s a general risk that we see that’s going to play itself out over the next few quarters.”
4. Automakers will adopt software and Generative AI across vehicles and operations
Now that generative AI has entered into the mainstream with popular products such as ChatGPT and Google’s Gemini rising in usage last year, it’s just a matter of time before the technology becomes more widespread in new vehicles to make them more intuitive and personalized.
In October, GM announced plans to integrate conversational AI in its vehicles and adopt a new centralized computing platform starting in 2028. The automaker also plans to introduce its own version of generative AI that’s custom-built for each of its models.
But experts say questions remain about data privacy, including how automakers might generate recurring revenue from connected AI-powered services, or how OEMs will form new partnerships with tech companies to integrate the necessary hardware into new software-defined vehicles at scale.
According to Deloitte’s 2026 Global Automotive Consumer Study, released on Jan. 7, automakers are receiving mixed signals from consumers that want advanced features but are hesitant to pay extra for them, while privacy concerns loom large.
The report found that connected vehicle systems are a major concern for U.S. respondents, mainly around information from synced devices (62%), in-cabin camera data such as driver monitoring (58%) and vehicle location data (58%).
Automakers will need customers onboard with sharing data about their vehicles to fully utilize AI’s potential, and that has not happened yet due to privacy concerns.
“In order for you to fully enable and monetize things like vehicle tracking for anti theft purposes, you have to be able to access the vehicle’s location data, which is top of mind,” said Robinson. “And right now with consumers, they don’t want [to], they’re reluctant to share that data.”
But outside of adding more advanced, AI-powered chatbots to vehicles, AI can be applied across an automaker’s entire value chain to boost manufacturing efficiency, improve vehicle quality controls and train neural network-powered autonomous driving systems.
“There are very clear benefits to the application of Gen AI upstream, whether it’s for doing things like virtual training of autonomous vehicle systems through synthetic data, predictive maintenance and the manufacturing process,” said Robinson.
5. The push for software-defined vehicles will continue into 2026
More car buyers today expect the same type of technology in their vehicles as their smartphones, including apps, connectivity features and infotainment options. These features can make models more appealing for consumers.
“When you get in the car, you don’t have to manually adjust your settings. It just knows your climate controls and your seating position, and all those sorts of things which you know are important to the consumer,” said Robinson about the potential of integrating software and AI into vehicles.
But launching software-defined vehicles introduces another dilemma, according to Jody Stidham, managing director of global automotive at Deloitte: While regular over-the-air updates can enhance safety, boost performance and reduce warranty costs, they can also keep vehicles feeling newer by adding fresh features, meaning that consumers are likely to hold on to them longer.
Deloitte’s Global Automotive Consumer Study found that 52% of U.S. respondents would keep their vehicle longer if it received regular OTA software updates, which could impact sales of new vehicles. The report also found that software-powered vehicle safety systems generated the strongest interest among consumers.
Still, as the global auto industry advances toward software-defined vehicle platforms, continuous upgradability is becoming a powerful way to extend vehicle life and strengthen consumer loyalty, according to the study.
“In an environment marked by affordability pressures and limited willingness to pay for digital add-ons, automakers should consider how they deliver software-enabled value across the ownership lifecycle to support long-term growth,” Stidham said in the report.
But automakers have also faced challenges in adding software to vehicles. Software faults were one of the major reasons for automaker recalls in the U.S. in 2025.
