The European Union will introduce an ‘action plan’ by early March to support its embattled automotive sector, which faces mounting challenges from emissions fines, high manufacturing costs, and increased competition from China. The announcement was made by European Commission President Ursula von der Leyen during a high-level meeting with industry leaders on Thursday.
“The European automotive industry is at a pivotal moment, and we acknowledge the challenges it faces. That is why we are acting swiftly to address them,” von der Leyen said. The strategic dialogue, chaired by the commission, brought together key industry players, including representatives from Volkswagen, BMW, Mercedes, Renault, suppliers, civil society groups, and trade unions.
Industry Pressures and Economic Concerns
The EU is under pressure to bolster a sector that employs 13 million people and contributes approximately seven percent of the bloc’s GDP. The automotive industry is grappling with costly transitions to electric vehicles (EVs), rising energy prices, and declining competitiveness compared to the United States and China.
On Wednesday, the commission launched a blueprint to modernize the EU’s economic framework, aiming to address concerns over sluggish productivity, weak investments, and regulatory burdens. The automotive industry has been particularly affected, with job cut announcements escalating. Volkswagen, for instance, has outlined plans to reduce its workforce by 35,000 positions across its German operations by 2030.
Emission Fines and Regulatory Flexibility
Carmakers have urged the EU for greater flexibility in implementing emission reduction targets, particularly regarding penalties set to take effect in 2025. According to Patrick Koller, CEO of French auto parts manufacturer Forvia, immediate financial penalties could hinder an already struggling industry. “Penalising immediately the industry financially is not a good idea, because the industry is in trouble and… has to restructure itself, which will cost a lot of money,” he said.
The EU’s emission-reduction policy mandates that car manufacturers cut CO2 emissions from new vehicles by 15% from 2021 levels or face penalties. The regulations are designed to push the industry toward increased EV and hybrid production ahead of the planned phase-out of fossil fuel cars by 2035. However, consumer reluctance toward EV adoption—due to high upfront costs and limited availability in the used car market—has complicated this transition.
Electric vehicle sales in Europe fell by 1.3% in 2023, accounting for 13.6% of total vehicle sales, according to the European Automobile Manufacturers’ Association (ACEA). The EU is exploring potential incentives for businesses to invest in electric fleets, which represent over half of new car purchases in the region. Additional efforts may focus on enhancing charging infrastructure, reducing energy costs, modernizing grids, and increasing domestic battery production to reduce reliance on China.
The market share of Chinese EVs in the EU surged to 14% in the second quarter of 2024, prompting Brussels to impose import tariffs of up to 35.3% on China-made electric vehicles. The decision, aimed at countering Beijing’s state subsidies that have undercut European manufacturers, has been met with resistance from Germany and other member states. Automakers such as BMW, Tesla, and several Chinese firms have filed lawsuits challenging the tariffs.
While von der Leyen reaffirmed the EU’s commitment to climate targets, she acknowledged the need for a pragmatic approach. “We want to stick to the objective… but we can smoothen the way,” she said, hinting at potential regulatory adjustments to ease the burden on automakers.
UPCOMING | EU Strategic Dialogue to Shape Future of Auto Industry Launches January 30
