The Chemicals Industry in the Transitionary EV Era: Implications for Asset-Based Lenders in 2026

January 2026

The shift toward electrified vehicles (EVs) has been a major strategic focus for the automotive industry over the past decade and a significant growth driver for chemical companies serving the automotive supply chain. Initially supported by aggressive automaker electrification goals and strong U.S. federal incentives for EV infrastructure and domestic battery supply chains, the transition is now experiencing increasing complexity. A combination of weakening EV demand in some segments, shifting manufacturer strategies toward hybrids and plug-in hybrids (PHEVs), and slower-than-expected rollout of public EV charging infrastructure is reshaping downstream demand for chemicals.

This article evaluates how these developments have influenced chemical industry sales and profitability over the past five years and offers an outlook through 2026, concluding with strategic guidance for asset-based lenders evaluating chemical sector exposure.

The Chemicals Industry’s EV Opportunity: How It Emerged

The automotive electrification trend initially promised a significant expansion of demand for chemicals used in electrified vehicles relative to internal combustion engine (ICE) vehicles.

Battery Materials and Specialty Chemicals

Electric vehicles depend heavily on lithium-ion battery chemistries combining lithium, nickel, cobalt, manganese, graphite, and advanced polymer separators, binders, and electrolytes. These materials represent a distinct growth segment for chemical producers compared to traditional automotive chemicals used in ICE vehicles (e.g., emission catalysts, fuel additives, engine lubricants). Materials such as anode and cathode active materials, electrolytes, and separators were projected to exhibit strong double-digit growth as EV adoption increased.

Chemical companies also play critical roles beyond batteries, supplying thermal interface materials, advanced plastics and polymers for lightweighting, and silicone and insulation compounds for EV power electronics. Wide-bandgap semiconductor materials like silicon carbide also depend on chemical inputs, presenting opportunities for specialty chemical producers to address EV powertrain efficiency and thermal management needs.

Supply Chain Integration and Battery Deal Activity

Automakers and battery companies initiated long-term supply agreements with upstream chemical and materials producers to secure critical battery components. A notable example is General Motors’ multi-billion-dollar agreement with Vianode to supply synthetic graphite anode materials for EV battery production in North America beginning in 2027, a critical step to localize battery supply chains and reduce dependency on China’s dominance of graphite supply.

Market Realities: The EV Transition Over the Past Five Years

Despite the initial promise, the pace and shape of the EV transition have shifted both in North America and globally, with direct implications for the chemical sector.

Automaker Pivot Strategies

During the early 2020s, major U.S. and global automakers publicly committed to progressively electrified vehicle lineups, with some targeting fully electric sales proportions approaching 100 percent by 2030 or 2035 under earlier regulatory incentives. However, recent industry developments demonstrate strategic recalibrations:

• Ford Motor Company has materially scaled back its EV ambitions, discontinuing the all-electric F-150 Lightning and pivoting toward hybrids, extended-range electric vehicles (EREVs), and profitable ICE segments after significant EV losses. It also terminated major battery supply agreements and joint ventures.
• Honda is reducing EV investment and refocusing on hybrid platforms, revising its EV targets downward for the near term.
• General Motors has softened its previously announced all-EV commitment by investing more in gasoline-powered platforms and balancing its portfolio to maintain flexibility.
• Other OEMs such as Lamborghini and some luxury segments are reportedly adjusting EV plans in favor of hybrid alternatives.

Conversely, a subset of automakers continues a robust EV strategy. Stellantis, for example, retains ambitious EV sales targets in the U.S. and globally, integrating mixed battery chemistries like lithium iron phosphate (LFP) and developing circular supply initiatives.

Shift to Hybrids and PHEVs

As EV adoption growth has plateaued relative to earlier expectation curves, manufacturers are increasingly emphasizing hybrid and plug-in hybrid vehicles (PHEVs) as critical transition products. Recent industry projections estimate that hybrids and PHEVs are growing both as replacements for EVs in some lineups and as complementary electrified products in markets with limited charging infrastructure or lower consumer EV demand.

EV Charging Infrastructure: A Pivotal Bottleneck

Broad adoption of battery-electric vehicles requires extensive public charging infrastructure to address range anxiety and operational convenience. Federal and state programs in the U.S. have provided substantial funding with the National Electric Vehicle Infrastructure (NEVI) program and other grant mechanisms dedicating billions toward charging station deployment. However, the pace of infrastructure deployment has been mixed.

By the end of 2024, roughly 204,000 public chargers had been deployed in the U.S., with growth at about 25 percent annually. While that figure is on par with required rates to support future EV volumes, the International Council on Clean Transportation reports that deployment has been uneven across regions. It is also worth noting that private infrastructure investment has outpaced some federal programs, amid shifts in federal policy emphasis.

Importantly, according to the HERE-SBD EV Index published by Here Technologies and research firm SBD Automotive, while electric vehicle demand continues to rise in the U.S., growth has slowed amid stalling charging infrastructure. While 37,000 EV charging points were added to the U.S. network year-over-year through June 2025 amounting to a 19% increase, the charging point expansion during the same period a year prior was 32%.

As the American Chemistry Council has noted, for chemical companies, slower charging infrastructure buildouts may temper demand for components used in EVSE (electric vehicle supply equipment), such as polymers, connectors, housings, and specialty resins used in charger manufacturing.

Chemicals Industry Sales and Profitability Trends

Segmented Impact by Chemical Product Category

• Battery Material Suppliers: Producers of lithium salts, precursor cathode active materials, electrolyte solvents and salts, and anodes such as graphite have seen accelerating demand over the past five years as EV sales climbed. However, pricing volatility in battery raw materials and the geographic concentration of production (especially China’s dominance in graphite and cathode precursor production) have constrained pricing power and margins for Western chemical companies seeking to expand in North America.

• Polymers and Lightweighting Materials: Demand for high-performance polymers, specialty elastomers, and adhesives has grown modestly due to EV OEMs’ use of these materials for weight management and thermal performance. Yet, the anticipated dramatic shift toward alternative materials such as carbon fiber or composites has not materialized broadly, with many EV platforms reverting to cost-effective steel and aluminum structures.

• Conventional Automotive Chemicals: Traditional ICE vehicle chemical segments (e.g., engine oils, fuel additives, and emission catalysts) are structurally declining as EV and hybrid powertrains gain market share. The hybrid pivot, however, sustains some residual demand for these products relative to a full EV transition.

Profitability Considerations

Chemical companies with battery materials footprints generally command higher margins relative to commodity petrochemical and traditional automotive materials, due to specialized production processes and technology differentiation. Yet, capital intensity for capacity expansion and proximity to OEM battery plants are strategic cost drivers and risk points — particularly for companies investing in U.S. production in the face of competitive Chinese material imports.

Lower-volume demand forecasts in North America — driven by slower overall vehicle production and less aggressive EV penetration — have also affected price dynamics for polymer grades used in automotive applications, with oversupply pressure observed in certain commodity lines.

2026 Outlook and Strategic Trends

Continued EV Growth, But at Variable Rates

Despite recent shifts including a somewhat less aggressive infrastructure buildout, global EV adoption continues to expand. According to projections from Gartner, the global EV fleet could exceed 100 million vehicles by 2026, with hybrid and PHEV segments also growing as transitional powertrains.

Chemical demand linked to battery production is expected to continue its upward trajectory — though the pace will depend on battery plant completions and long-term contracts between OEMs and suppliers. Investments in advanced battery chemistries (e.g., solid-state batteries) could begin to generate new chemical demand curves in the year ahead, into 2027 and beyond.

Shift from Commodity to Specialty Focus

Chemical companies are increasingly prioritizing specialty, high-value segments (e.g., tailored binder systems, advanced separators, and thermal management compounds) that align with EV performance requirements, electrification of power electronics, and related applications beyond traditional automotive uses.

Geopolitical and Supply Chain Risks

The U.S. chemical supply chain faces geopolitical risk through dependence on imported battery precursors. Local production mandates, tariff dynamics, and federal incentives will remain critical in shaping domestic chemical sector investment profitability.

Asset-Based Lending Guidance

For asset-based lenders considering chemical company borrowers in the context of the ongoing EV transition, the following strategic considerations should guide underwriting and portfolio risk management:

Segment-Specific Risk Assessment

• Battery Chemicals and Materials: Evaluate borrower exposure to battery material niches with clear long-term OEM contracts or technology advantages (e.g., synthetic graphite, high-purity electrolyte solutions). Examine supply contracts’ duration, pricing mechanisms, and exposure to raw material price volatility.
• Specialty Polymers and Electrification Materials: Assess demand drivers tied to power electronics, thermal management, and lightweighting materials. These segments often demonstrate stronger growth prospects with differentiated product positioning.
• Legacy Automotive Chemical Exposures: Recognize secular decline risk for ICE-related chemistry segments and adjust risk ratings accordingly.

Collateral Considerations

• CapEx Intensity and Technology Upgrades: Battery chemical capacity expansion requires significant capital investment and often faces long lead times. Collateral valuation should reflect technology obsolescence risk and commodity cycles more than traditional chemical assets.
• Inventory and Receivables Exposure: Longer OEM payment cycles and just-in-time inventory models can strain liquidity. Consider availability and valuation haircuts for specialized inventories tied to EV platforms.

Geographic and Supply Chain Flexibility

• Borrowers with geographically diversified production footprints or strategic access to critical raw materials (via partnerships or near-shoring initiatives) may present lower supply chain risk.
• Companies highly dependent on imported intermediates, particularly those with Chinese supply chains, warrant closer scrutiny of geopolitical and tariff exposure.

Stress Testing Scenarios

• Stress test borrowers against scenarios including slower EV adoption in key markets, delayed charging infrastructure rollout, and raw material price spikes.
• Include alternative demand scenarios reflecting hybrid/PHEV growth regimes, which could offset declines in pure EV demand for certain chemical segments.

Conclusions

The evolution of the electric vehicle paradigm over the past five years has created both opportunities and headwinds for the chemical industry. While electrification spurs demand for specialty battery materials and advanced performance chemicals, slower EV adoption in some segments and strategic pivots by major automakers toward hybrids have generated uncertainty in forecasted demand growth. Asset-based lenders must differentiate among chemical subsegments, prioritize borrowers with resilient market positioning and contractual safeguards, and integrate electrification-related demand variability into credit and portfolio risk models as 2026 approaches. The chemicals industry remains fundamentally integral to the future of mobility, but its profitability narrative will be shaped by adaptability to an evolving automotive landscape that balances EV growth with pragmatic market realities.

Hilco Global is the leader in valuation services for the chemical industry, with hundreds of highly accurate appraisals delivered on asset values ranging from $10 million to over $1 billion. The Hilco Valuation team frequently works hand-in-hand with other Hilco experts including those within our Strategic and Operational Advisory to provide cross-functional Manufacturing Operations, Supply Chain, People, Mergers & Acquisitions, and Commercial expertise to the chemical and other industries. By teaming highly regarded industry veterans with advisory experts, we are uniquely positioned to deliver optimal solutions that assist businesses in achieving favorable outcomes under a wide range of market conditions and circumstances.