Sony Group Corp (NYSE:SONY) and Honda Motor Co Ltd.‘s (NYSE:HMC) joint electric vehicle venture faces significant headwinds as it prepares to enter the U.S. market in 2026, amid expected policy changes under President-elect Donald Trump that could reshape the EV landscape.

What Happened: The partnership, Sony Honda Mobility, will unveil its production-ready Afeela sedan prototype at CES 2025 in Las Vegas next month. While the vehicle’s hardware is largely complete, developers are fine-tuning the software-centric features that distinguish it from competitors, according to SHM President Izumi Kawanishi, Nikkei reported on Wednesday.

The timing of Afeela’s launch coincides with potentially major shifts in U.S. auto policy. Trump’s anticipated elimination of the current $7,500 EV tax credit could reduce electric vehicle sales by nearly 30%, according to the National Bureau of Economic Research.

This policy shift has already influenced market dynamics, with Tesla Inc. (NASDAQ:TSLA) shares rallying following Trump’s election victory.

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What Happened: The changing landscape has divided industry analysts. Roth MKM analyst Craig Irwin recently raised Tesla’s price target by 347% to $380, suggesting established players might benefit from reduced subsidies. However, newcomers like SHM could face additional challenges beyond the subsidy cuts, including potential tariff increases.

Despite these hurdles, SHM is betting on its unique value proposition. The Afeela features 45 cameras and sensors, an entertainment-focused cabin design, and software that can be updated like a smartphone. The company aims to differentiate itself through Sony’s entertainment and sensor expertise combined with Honda’s automotive manufacturing capabilities.

“All businesses have ups and downs,” Kawanishi noted, emphasizing the venture’s long-term vision. Industry experts suggest annual sales of 30,000 to 40,000 units would be considered successful for the new entrant in a market dominated by Tesla, which controls approximately half of U.S. EV sales.

EV-focused exchange-traded funds, including Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (NASDAQ:EVMT), Amplify Lithium & Battery Technology ETF (NYSE:BATT), KraneShares Electric Vehicles and Future Mobility Index ETF (NYSE:KARS), and Global X Lithium & Battery Tech ETF (NYSE:LIT), have all been trading in the red since Trump’s election victory on Nov. 6.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.