The European Commission unveiled a comprehensive strategy Wednesday aimed at salvaging the continent’s struggling automotive sector, with a notable shift on emissions rules that’s drawing sighs of relief from car executives who’ve backed away from aggressive EV plans.
The five-pillar plan comes as European automakers face mounting pressure from potential US tariffs threatened by President Donald Trump, growing Asian competition and consumer reluctance to embrace electric vehicles.
“The significance of the automotive industry isn’t just in its numbers. This industry is part of our history and is currently threatened from multiple perspectives,” said Transport Commissioner Apostolos Tzitzikostas at a press conference. “But we must also be pragmatic.”
The automotive sector accounts for about 7% of the European economy and employs roughly 14 million people.
Emission Rule Relief
In a significant concession to manufacturers, the Commission will allow automakers to exceed tougher targets in 2025 and avoid fines by reporting compliance over a three-year period rather than annually. President Ursula von der Leyen’s move follows months of industry pressure.
“Europe’s emission standards for new cars and vans provide long-term certainty for investors. So they remain,” Tzitzikostas told reporters. “But our proposal addresses penalties for 2025. Carbon neutrality reporting will be uniform and companies will have until 2027 to reach emission goals.”
The flexibility could lift earnings by almost €3 billion for Volkswagen, Stellantis and Renault, according to Bloomberg Intelligence. The three automakers combined sell more than half the new vehicles registered in the European Union.
Not everyone supports the change. Volvo Car, which was positioned to be compensated by Mercedes-Benz for helping with CO2 compliance, opposes the action, arguing the industry had years to prepare for stricter standards.
“I don’t think you should change the rules of the game in the middle of the game,” said William Todts, executive director of advocacy group Transport & Environment.
Manufacturers’ Strategic Shifts
The regulatory relief comes as major automakers recalibrate their electric vehicle ambitions.
Volkswagen began walking back its EVs-or-bust strategy after replacing former CEO Herbert Diess with Oliver Blume in 2022. Blume scrapped plans for a new €2 billion EV factory in Wolfsburg, Germany, and the company’s namesake brand laid plans for more hybrid models as demand for fully electric cars slowed.
Similarly, Stellantis adjusted its approach following former CEO Carlos Tavares’ resignation in December. The manufacturer has been rushing to expand its lineup of hybrids, and Maserati recently abandoned plans for an all-electric supercar.
Blume welcomed the Commission’s plan, calling it “a great opportunity in terms of aligning climate protection, competitiveness and economic progress in this challenging geopolitical situation.”
Battery Production Boost
The Commission’s action plan includes €1.8 billion from the Innovation Fund for EU battery production, acknowledging that batteries represent 30-40% of an electric vehicle’s value.
“To be competitive, Europe must be able to manufacture batteries itself. The Critical Materials Center will offer manufacturers access to raw materials at low costs,” Tzitzikostas explained.
The Commission will establish an entity to secure access to battery raw materials, crucial for reducing Europe’s strategic dependencies in the EV supply chain.
Central Europe’s Vulnerability
Central European countries could be particularly vulnerable to US tariffs. Czech Republic, where exports account for 69% of production, and Slovakia, with 92%, would be among the hardest hit.
According to S&P Global, when the Trump administration begins collecting these tariffs, they will likely restrict economic growth throughout Central Europe, worsening current budget problems.
“Changes in global demand and geopolitical shifts from recent weeks are leading to the closure of European car factories,” Tzitzikostas noted.
Autonomous Driving Initiative
The plan positions autonomous driving as a potential area where Europe could gain competitive advantage, with the creation of cross-border testing centers.
“No European country currently has a plan for autonomous vehicles. China and the US do,” Tzitzikostas said. “Now is the time to make this our greatest strength and unify national legislation so we can implement this technology throughout the Union.”
Electric vehicles currently represent 15% of new car sales in Europe, a figure the Commission wants to increase through consumer incentives and support for car-sharing companies with zero-emission vehicles.
The comprehensive plan reflects the Commission’s attempt to balance climate goals with economic realities, providing relief to an industry that’s struggling with the transition to electrification while maintaining its long-term vision for a carbon-neutral future.
The Commission has also announced it will begin a review of the overall goal of selling only emissions-free new cars in Europe from 2035 in the second half of this year, earlier than originally planned.
