EU's Action Plan: A Lifeline for the Auto Sector

The European Union (EU) has unveiled an action plan to support its ailing automotive industry, aiming to bolster competitiveness and protect jobs in the face of eroding sales markets, competition from China, and the ongoing decarbonization process. The plan, presented on March 5, 2025, addresses a broad range of issues relevant to the sector, including CO2 emission standards, charging infrastructure, and battery production.



One of the key aspects of the EU's action plan is the introduction of flexibility in CO2 emission standards. The Commission will present additional flexibilities, allowing car manufacturers to compensate an exceedance of the target in one or two years by overachieving in the other year(s). This approach aims to balance the need for climate action with the competitiveness of the European automotive industry, acknowledging the challenges faced by manufacturers in meeting strict emission standards, particularly in the face of slow demand for zero-emission vehicles (ZEVs) and competition from other regions.

The EU Emissions Trading System for road transport and buildings (EU ETS 2) will effectively limit CO2 emissions from 2027, ensuring that the climate targets for road transport are met. However, the EU can and should give manufacturers more flexibility and technological openness within CO2 fleet emission standards to adapt to unforeseeable changes and also give efficient hybrids a chance (Menner, cep transport expert).

Another crucial component of the EU's action plan is the support for the European battery supply chain. The EU aims to reduce its dependence on other regions for critical automotive technologies by setting up "European content requirements on battery cells and components in EVs sold in the EU." This move is similar to the Inflation Reduction Act in the US, which has been criticized for its protectionist measures. The EU's plan includes dedicated financing support for end-of-life vehicles and battery recycling facilities, with the long-term goal of boosting the circular economy of the automotive supply chain and increasing strategic autonomy and resilience in the global automotive market.

The EU's action plan also includes measures to address the current market demand issues for zero-emission vehicles (ZEVs) and boost their uptake. These measures are likely to be effective in stimulating demand and helping the industry meet its CO2 reduction targets. Some of the specific measures include:

1. Social Leasing Scheme: The EU Commission proposes a "Social Leasing" scheme for new and second-hand zero-emission vehicles, which aims to increase affordability and accessibility for consumers. This scheme could significantly boost demand, as seen in France, where similar measures have been implemented.
2. Corporate Fleet Decarbonisation: The EU Commission plans to introduce a legislative proposal to support the uptake of ZEVs by corporate buyers. This includes ending tax breaks for petrol or diesel-powered company cars, which is expected to encourage businesses to switch to electric vehicles. Given that corporate fleets account for around 60% of new car registrations in the EU, this measure is likely to have a substantial impact on ZEV demand.
3. Incentives for Member States: The EU Commission wants to bring member states together to exchange best practices and lessons learned on incentives schemes for consumers. This could lead to a more unified approach across member states, with the possibility of introducing EU-level incentive schemes. By sharing successful strategies and potentially harmonizing incentives, this measure is likely to be effective in stimulating ZEV demand.
4. Charging Infrastructure Development: The EU Commission plans to continue supporting the installation of charging infrastructure along major highways and for heavy-duty vehicles. This includes allocating €570 million under the Alternative Fuels Infrastructure Facility (AFIF) for new "alternative fuels infrastructure" in 2025 and 2026. By addressing the range anxiety and convenience concerns of consumers, this measure is likely to be effective in increasing ZEV adoption.

In conclusion, the EU's action plan to support the auto sector is a comprehensive and well-thought-out approach to addressing the challenges faced by the industry. By providing flexibility in CO2 emission standards, supporting the European battery supply chain, and implementing measures to boost demand for zero-emission vehicles, the EU is taking concrete steps to safeguard the competitiveness of its automotive industry and protect jobs in the sector. As the industry continues to evolve and adapt to the changing landscape, the EU's action plan will be crucial in ensuring its long-term success.