Will EU Put The Climate Before Its Auto Industry?

Will EU Put The Climate Before Its Auto Industry?

“We need a reality check. Otherwise, we are heading at full-speed against a wall”

If European Union carbon dioxide emissions from transport aren’t eliminated, this will spur climate change and damage the planet. If EU transport CO2 emissions on new cars are eliminated by 2035, the flagship high-technology industry and employer of millions will be damaged, while boosting Chinese manufacturers.

“Between a rock and a hard place” comes to mind. 

Under pressure from auto manufacturing countries’ governments and automakers the European Commission has brought forward its review of the 2035 plans from next year to this. This follows a clamor from the industry to have the rules diluted or scrapped. Critics say the rules will hamper Europe’s drive to switch to electric vehicles and lead to its long-term demise. The legislation was justified initially as part of a package of measures to protect the climate from harmful CO2 emissions. 

The move to question Europe’s harsh CO2 curtailment rules coincides with Trump Administration efforts to terminate rules based on the case that CO2 is a danger to public health. These rules form the basis for U.S. greenhouse gas regulations.

European auto industry leaders said Wednesday these CO2 targets are no longer feasible.

The European Automobile Manufacturers Association (ACEA) and the European Association of Automotive Suppliers (CLEPA) told European Commission President Ursula von der Leyen in a letter EU manufacturers now face near-total dependency on China for batteries. The charging infrastructure was uneven. They faced higher manufacturing costs and U.S. tariffs.

 “Meeting the rigid car and van CO2 targets for 2030 and 2035 is, inn today’s world, simply no longer feasible. Legal mandates and penalties will not drive the transition. EVs will lead the charge, but there must also be space for plug in hybrids, range extenders, highly efficient internal combustion engine vehicles, hydrogen and decarbonized fuels,” the letter said. 

Strong language from Mercedes
Mercedes-Benz CEO Ola Kaellenius also used strong language earlier in August to demand the EU’s CO2 plan be killed or diluted.

“We need a reality check. Otherwise, we are heading at full-speed against a wall,” he said, adding the European car market could collapse if the CO2 plan goes ahead. Kaellenius is also head of ACEA.

“Of course we have to decarbonize, but it has to be done in a technology-neutral way. We must not lose sight of our economy,” he said. He called for tax incentives and cheap electricity to boost EV demand.

Technology neutral means consumers could buy the technology of their choice, https://www.forbes.com/sites/neilwinton/2025/06/17/will-the-eu-roll-back-2035-ev-monopoly-target-to-save-its-industry/

and the ban on the sale of new ICE vehicles would end in 2035. This would include the use of so-called e-fuels.

 The European Parliament decided in 2023 that new sedans, SUVs and vans from 2035, must produce zero CO2. That, effectively, means all new cars will have to be electric. The rules on CO2 emissions tighten significantly over the next five years and mean about 80% of the market by 2030 must be electric. Britain has an even tighter set of rules, eliminating new ICE by 2030.

Natural demand for EVs is still weak
The trouble is, there is only weak natural demand for EVs. EVs are much more expensive than ICE models and lack their all-round ability. Until recently, new entry-level ICE cars were considered affordable by Europeans on average wages, but in part thanks to EU regulations this market has been killed. The cheapest EVs are still beyond the reach of average earners, although some new models, like the Dacia Spring, Leapmotor TO3 and BYD Dolphin Surf are closing the gap. 

EV sales estimates from various investment banks and institutions show there will be a significant shortfall from the 80% requirement by 2030. Forecasters like BMI, a part of Fitch Solutions, and investment researcher Jefferies, say 35%. French automotive consultancy Inovev says 40%. Professor Stefan Bratzel, from Germany’s Center of Automotive Research reckons between 40 and 50%. At the high end, Schmidt Automotive Research expects 57% but this only includes Western Europe. EV volumes sees 54.6%. Bernstein Research recently cut its forecast for 2030 to 49% from 51% previously and to 75% in 2040 from 78%. 

Kaellenius is backed by other German automakers like Volkswagen and BMW. In the European Parliament, which would have to approve a change in the rules, political groupings including The European People’s Party, Conservatives and Reformists, and Identity and Democracy, want to change the ban on new ICE vehicles by 2035. https://www.forbes.com/sites/neilwinton/2025/05/18/eu-under-pressure-to-weaken-mandate-outlawing-new-ice-vehicles/

Germany, Italy, Poland, Czechia and Hungary are notable backers of change. 

Renault, Volvo Tesla want to keep ban
France, Spain, the Netherlands, Sweden and Denmark want to keep the ban. Renault, in which France holds 15%, Volvo Cars and Tesla want to keep it. 

Brussels-based green-lobbyist Transport & Environment is a vocal supporter of the ban, as are Greenpeace and the European Climate Foundation.

T&E says removing the ban would be disastrous for the auto industry and could result in the loss of 1 million auto jobs and two-thirds of planned battery investments if 2035 is implemented. Europe could return to producing 16.8 million cars a year, equaling its post-2008 crisis peak if it keeps the “clean” cars target and implements policies to support the transition, T&E said. Last year 12.5 million cars and SUVs were sold in Europe.

Commenting on Kaellenius’s remarks in a LinkedIn post, Pedro Pacheco, senior research director at Gartner Group, said sales of ICE and hybrid vehicle sales in Europe peaked in 2008 and EVs sales have consistently grown.

“Hence, it’s hard to see why terminating ICE sales would kill the market if their sales are dropping for already 16 years. Just for reference, sales of non-EVs have peaked globally in 2018,” Pacheco said. 

He said Europeans need to get globally competitive with EVs, not extend the life of new ICE power. 

Not much choice for Europe really
“Looking at the macro picture, the European auto industry doesn’t really have much of a choice besides getting a lot more serious about EVs,” Pacheco said.   

The European Commission has brought forward to 2025 from 2026 its decision on whether to change the rules which culminate in zero emissions in 2035. It’s not clear whether the Commission will pay attention to the forecasts predicting the huge shortfall in 2030 from current expectations. 

Nevertheless, the Commission might decide to retain the program. Some sections of the auto industry have asked for the rule that emissions in 2030 must be cut to 55% of 2021 levels, falls to 40%. Others want 2035 requirements to be delayed until 2040. The Commission could allow e-fuels, which would extend the life of ICE vehicles. 

Von der Leyen will host automotive sector executives September 12 to discuss the future of the sector