The automotive industry is a crucial part of Europe’s economy, providing 13 million jobs and contributing 7% to the EU’s GDP. However, European automakers are under increasing pressure due to rapid technological advancements, evolving market dynamics, and fierce global competition.
To guide the sector toward cleaner, smarter, and more connected mobility, the European Commission has introduced a comprehensive action plan aimed at boosting competitiveness, strengthening supply chains, and accelerating the shift to sustainable transport.
In January 2025, the EU launched a strategic dialogue on the future of the automotive industry. This dialogue brought together representatives from the automotive sector, social partners, infrastructure stakeholders, and civil society to seek common solutions.
Building on the outcomes of this dialogue, the European Commission unveiled the Action Plan for the Automotive Industry in March. Key measures include extending the deadline for automakers to meet the EU’s 2025 CO₂ emissions targets from one year to three years, along with initiatives related to battery production, software, charging infrastructure, autonomous driving, and tariffs.
European Commission President Ursula von der Leyen stated:
“I want to see our European automotive industry lead the way. We will promote localized production to reduce strategic dependencies, particularly in battery manufacturing. We will uphold our emissions targets but in a pragmatic and flexible manner. Our shared goal is to build a sustainable, competitive, and innovative European automotive industry that benefits our citizens, our economy, and our environment.”
1.Flexible Transition to Zero-Emission Vehicles
To enhance flexibility, the European Commission will propose amendments to CO₂ emissions regulations for cars and vans. Manufacturers will be allowed to average their fleet performance over a three-year period (2025-2027), compensating for any shortfalls in one year with overperformance in other years—while still meeting the 2025 target.
By 2025, emissions must be reduced by approximately 15% compared to current levels. This implies that battery electric vehicles (BEVs) must increase their market share from the current 13.6% to 20-25%. This flexibility allows manufacturers to make up for underperformance in one or two years by exceeding the target in subsequent years.
However, the plan does not mention the industry’s call for technological neutrality, which would allow a mix of low- and zero-emission solutions such as synthetic fuels, range-extended hybrids, and hydrogen-powered vehicles.
2.Reviving Demand for Electric Vehicles
Last year, demand for BEVs declined, largely due to Germany’s decision to end subsidies in late 2023. Consumers cited uncertainty around incentives as a key reason for hesitating to purchase electric cars.
To address this, the EU will work “without delay” to identify best practices for incentives across member states and explore funding options. The plan includes making zero-emission vehicles financially more attractive by either reducing subsidies for traditional combustion-engine vehicles or enhancing incentives for electric models.
Additionally, the EU will increase the number of charging points at airports to encourage rental car fleets to adopt EVs. Other measures include regulations to grant third-party service providers, such as repair shops and insurers, easier access to vehicle data.
The Commission is also backing social leasing programs, allowing low-income buyers to lease BEVs for as little as €40 per month. Furthermore, subsidies for company fleets purchasing internal combustion engine (ICE) vehicles—accounting for 60% of new car sales—will be phased out.
To expand charging infrastructure, the EU will accelerate deployment along major highways under the Clean Transport Corridor initiative. It will allocate an additional €570 million in 2025-2026 to support heavy-duty vehicle charging, supplementing the previously pledged €1.7 billion.
3.Catching Up with the US and China in Autonomous Driving
In the US, companies like Waymo have already deployed autonomous vehicles (AVs), while China has made significant strides in AV testing. Europe, by comparison, lags behind, putting its automakers at a competitive disadvantage.
To address this, the EU is proposing a Single Market for Autonomous Vehicles, featuring cross-border testing platforms, self-driving highway corridors, standardized regulations, and simplified approval procedures.
The Commission will establish a Connected and Autonomous Vehicle Alliance, bringing together key industry stakeholders to develop:
- An open-source software-defined vehicle platform applicable across the EU
- A future-proof onboard computing architecture adaptable across multiple vehicle generations
- AI-powered vehicle models and algorithms, such as those for autonomous driving and advanced battery management
- Regulatory sandboxes to facilitate real-world testing of AV technologies
The EU will also set new AV regulations and, alongside private-sector partners, invest €1 billion through Horizon Europe by 2027 to advance the action plan’s goals.
4.Addressing Foreign Competition
Foreign investment in EU EV and battery manufacturing is seen as crucial to growth—especially from Chinese firms. However, the EU plans to introduce conditions for foreign direct investment (FDI), potentially requiring joint ventures, local hiring mandates, technology-sharing agreements, and supply commitments to maximize economic benefits.
The EU has already launched anti-subsidy investigations into Chinese EV manufacturers and is prepared to expand these probes into the battery and components sectors. Meanwhile, additional tariffs on Chinese EVs introduced in 2024 have caused a sharp decline in MG4 sales, which were previously thriving.
The EU remains open to negotiating minimum price agreements with China to replace tariffs. Additionally, it is considering tightening rules of origin to prevent foreign automakers from circumventing tariffs by assembling vehicles in third countries with preferential trade agreements.
5.Strengthening Domestic Battery Supply Chains
The EU aims to boost self-sufficiency in battery production while ensuring cost competitiveness. It will continue supporting European battery manufacturers and may offer direct subsidies.
European battery cell production has struggled to take off, with startups like Northvolt failing and joint ventures like Stellantis-Mercedes ACC scaling back plans. Consequently, the EU is shifting focus to battery innovation, committing €1 billion by 2027, with additional funding for disruptive technologies.
In the short term, a program called the “Battery Booster” will provide €1.8 billion over the next two years to support domestic battery production. The EU also encourages foreign investment in building battery factories, where overhead cranes can be installed to improve efficiency. Additionally, any cooperation must involve technology sharing and provide “sufficient added value” to the EU.
Battery recycling is another key focus. The EU is exploring dedicated funding for vehicle and battery recycling facilities, with the long-term goal of fostering a circular economy and reducing reliance on imported raw materials.
“Transitioning to a circular economy is essential for reducing raw material dependence and enhancing the resilience of Europe’s automotive supply chain, including its battery ecosystem,” the document states.
6.Workforce Challenges During the Transition
To address skills shortages, labor mismatches, and workforce aging, the Commission will increase funding from the European Social Fund (ESF+), encouraging member states to allocate more resources to automotive industry reskilling programs. Additionally, factories can adopt workstation cranes to improve production efficiency.
To support workers affected by the transition, the EU is expanding the European Global Adjustment Fund (EGF) to provide faster and broader assistance.
The European Fair Transition Observatory will monitor employment trends and skill gaps, identifying at-risk jobs and necessary workforce adjustments.
7.Industry Reactions
The European Automobile Manufacturers’ Association (ACEA) welcomed the plan’s emphasis on simplifying regulations and enhancing competitiveness, particularly in autonomous driving.
ACEA’s Director General, Sigrid de Vries, stated:
“This action plan highlights many critical areas requiring immediate attention. The flexibility in CO₂ targets is a step toward a more market-oriented and geopolitically realistic decarbonization approach. If the necessary measures on charging infrastructure and market incentives materialize, automakers will gain much-needed breathing space.”
The German Association of the Automotive Industry (VDA) called the plan a “step toward realism”, recognizing that achieving EV adoption goals requires proper market conditions, energy pricing, and raw material supply chains.
Stellantis also praised the initiative, emphasizing that the CO₂ compliance deadline extension was a positive step that maintains competitiveness while supporting electrification. The company urged swift legislative approval of these proposals, alongside stronger procurement incentives, cheaper green energy, and infrastructure investments to accelerate the transition.
IQnewswire 
Sky Bloom INC