Global scale has always been the secret to success in the global car industry but that is under threat as regions diverge in ways we’ve not seen for decades. 

The increasing gulf between regulation, buyer demands and state protectionism from market to market is forcing car makers to take a much more localised approach, and that’s badly hurting their ability to use scale to sell cars profitability.

“Our industry is fundamentally more regional and fragmented,” Stellantis CEO Antonio Filosa told investors at the company’s capital markets day in May. He cited the firm's two biggest markets, Europe and the US. “Europe is moving faster into electrification, while the US is easing the CO2 trajectory and redefining trade conditions,” he said.

The dream situation for car makers would be to sell their model line-up across global markets united by similar legislation and buyer preferences. Back in the real world, of course, that has never really happened. Crash legislation in the US, for example, was always out of kilter with Europe's laws, while richer markets require more content than those with less buyer spending power. 

But on the whole, the major markets could still be reached with common global platforms, an idea taken to its zenith by former Ford CEO Alan Mulally, who took over the top job in 2009. The former Boeing exec saw the world buying similar 777s – so why couldn’t the same happen with cars?

However, the mega-trends of electrification, the rise of the Chinese and the retreat of the US to a pre-electric, pre-globalisation era is dramatically altering the calculations for global car companies.

Honda is among those revisiting strategies that have been in place for decades. “It has been our standard practice to develop and sell all products based on global standard performance specifications regardless of target countries and regions,” CEO Toshihiro Mibe said on the company’s earnings call 14 May. However, the global car market started to fragment, forcing a change of strategy. “Our global standard approach may have been somewhat excessive,” admitted Mibe, in reference partly to a failed attempt to crack the difficult Indian market.

The mantra for car makers now is to think regional and develop models for local tastes. However, this requires a fundamental rethink. “First off, it’s incredibly expensive just to develop vehicles, as everybody knows. But then, if you have to start regionalising them to the point where you cannot make a global platform, that gets even more expensive,” said Rebecca Lindland, global head of automotive advisory at consultants HarrisX, on a recent webinar.

Even the premium brands are being forced to think more local. European premium brands such as BMW and Mercedes-Benz in the past could largely rise above global barriers because regional differences mostly evaporated higher up the price bracket. Any remaining differences requiring re-engineering were easily absorbed by the higher profit margins, but not any more.

A good example is in China, where tax changes and phenomenal technological leaps from local brands have this year almost entirely killed off the plug-in hybrid market for European premium marques. Instead, they are having lean on local partners to supply the technology missing from their armoury. 

For example, Volvo had to reboot its PHEV strategy in China using a platform from owner Geely, which allowed it to launch the China-only XC70 SUV with its 124-mile electric range, matching that of local rivals such as Li Auto. 

“Special products for China would be almost impossible for us to develop by ourselves,” Volvo CEO Håkan Samuelsson told the Financial Times Future of the Car conference in May. “Now we have a more regionalised world, we need stronger regional partners.” BMW calls this approach ‘think global, but act local’.

Global player Porsche knew what to do when emissions regulations in its three biggest markets – the US, Europe and China – were all heading in the direction of electric. When the US under president Donald Trump slammed on the brakes to return to combustion and Europe started wobbling, Porsche was left with no option but to shred much of its future EV plans in reaction, costing it €2.4 billion (£2.1bn). 

In total, car makers including Stellantis, Honda, GM and Ford have booked write-downs totalling more than $70bn (£52bn) this year, largely due to the US's reversals on emissions requirements, according to research from Reuters.

Meanwhile, the increase in tariffs to import cars into the US to 10% for UK-built models and 15% from the European Union has made cars less competitive in what is now the biggest market for many European premium brands. 

For those already localised with plants there – BMW, Mercedes and Volvo – that’s not too much of a problem. For JLR, though, it only widens the gulf with its rivals – hence the news that it wants to partner with Stellantis specifically within the US. This is likely to include local production in Stellantis plants, almost certainly with a new or heavily reworked model built to the new US standards, a costly process.

Meanwhile, on the other side of the coin, Europe’s dash to electric and its preference for smaller cars has forced Ford to turn to regional help with its EVs, first with Volkswagen for the Explorer and starting in 2028 with Renault, which will build two small EVs for the US giant.

The rise of the Chinese and the astonishing pace at which they’ve exported their low-cost, often electrified cars has forced markets with car industries of their own to abandon globalist principles and raise barriers, including tariffs. The US has shut the Chinese out entirely, while others have made it costlier for them to import electric cars, including the European Union, Brazil and Mexico.

The EU has gone further with the proposed ‘Made in Europe’ Industrial Accelerator Act that ring-fences certain benefits on cars made within its borders. This gives local brands breathing space from the Chinese onslaught but has obvious knock-off effects, including potentially excluding cars made in the UK. 

BMW has already slammed the proposal, mainly because it throws more sand into the delicate machinery that is global trade by encouraging other countries to put up their own barriers in retaliation.

The speed at which the global world has turned in on itself has loused up long-term product plans. The Volkswagen Group, for example, has had to go back to the drawing board with its new, all-encompassing SSP electric platform because once-nailed-on markets are knocked out of contention and new Chinese players lower the price ceiling. 

“The reality is that you have to tighten the screws. Because of the world being disconnected, you can't scale across the continents. Then you have to redo the math,” Volkswagen brand boss Thomas Schäfer told the Financial Times Future of the Car conference. SSP is now planned for the end of the decade, having initially been pencilled in for launch this year. “It sounds like it has taken so long, but we're looking at scale, and you have to have scale in this game,” said Schäfer.

The company is still working out whether the platform will need a range-extended option with a combustion engine. The fundamental differences between an ICE platform and a properly engineered EV platform (ie not an ICE carryover) makes it hard to find common ground, but flexibility is vital for global relevance. “The key to maintaining profitability in a fragmented market lies in maximising parts commonality between BEV and ICE/hybrid lines,” Harris Ng, a partner at consultant Kearney wrote in a report. “Platform strategies become essential.”

Car makers will never give up on global coverage with a single platform, simply because of the scale benefits it can bring. For example, Stellantis will make a version of the new Fiat Grizzly compact SUV, using the company’s low-cost Smart Car platform, for Chrysler in the US in the hope that there’s still demand for smaller cars in an increasingly truck-dominated landscape. 

Stellantis’s buzzword at its capital markets day was 'multi-regional'. Fate has tried its hardest to prevent those regions from helping each other, but the car company that can thread that needle and stitch back together a fractured world will do very well indeed.