The Strategic Case for Investing in Hybrid and ICE-Ready Automakers Amid the EU’s 2035 Combustion Engine Debate

The EU’s 2035 combustion engine ban, once a seemingly unassailable regulatory mandate, is now a focal point of political and industrial recalibration. As the European Commission revises its CO₂ emissions framework and industry leaders push for a technology-neutral approach, investors are increasingly scrutinizing automakers’ adaptability to shifting regulatory landscapes. This analysis argues that hybrid and ICE-ready automakers—particularly those with diversified strategies like BMW—offer superior long-term value resilience and growth potential compared to over-committed EV rivals.

Regulatory Uncertainty and Industry Pushback

The EU’s original 2035 target for a 100% reduction in CO₂ emissions from new cars and vans has faced mounting pressure. A key adjustment introduced in July 2025 allows automakers to average compliance over three years (2025–2027), providing greater flexibility to meet targets [3]. This shift reflects the Commission’s acknowledgment of industry challenges, including supply chain bottlenecks, infrastructure gaps, and global competition from China [2].

Political dynamics further complicate the regulatory outlook. The European People’s Party (EPP), the largest bloc in the European Parliament, has openly advocated for weakening or overturning the ban, citing economic competitiveness concerns [5]. Meanwhile, automakers like BMW and Mercedes-Benz have called for a technology-neutral framework that incorporates alternative fuels such as e-fuels and biofuels [1]. These developments underscore a regulatory environment in flux, where rigidity is being replaced by pragmatism.

BMW’s Proactive ICE Development and Balanced Roadmap

Among automakers, BMW stands out for its strategic foresight in navigating this uncertainty. While fully committed to electrification, the company has simultaneously invested in advanced ICE technologies, including highly efficient combustion engines and hybrid systems. BMW CEO Oliver Zipse has emphasized the need to consider the entire vehicle lifecycle, including emissions from battery production, and has openly criticized the fixed 2035 timeline as a “big mistake” [1].

This dual-track approach is reflected in BMW’s CO₂ compliance strategy. By leveraging plug-in hybrids and range extenders, the company can meet intermediate targets while maintaining flexibility for future regulatory shifts. For instance, BMW’s Group CO₂ performance in 2024 exceeded EU targets by 12%, demonstrating its ability to balance innovation with compliance [3]. This adaptability positions BMW to thrive in a scenario where the 2035 ban is either delayed or modified to accommodate alternative fuels.

Contrasting with Over-Committed EV Rivals

In contrast, automakers that have fully pivoted to EVs face heightened risks in a regulatory environment marked by uncertainty. Companies like Hyundai and Kia, which have aggressively scaled EV production and infrastructure in Europe, now face potential financial setbacks if the 2035 timeline is revised. Kia Europe CEO Marc Hedrich has warned that a rollback would cost the company “a fortune” and disrupt its EV rollout plans [1]. Similarly, Tesla’s reliance on a single technology pathway (battery-electric vehicles) leaves it vulnerable to regulatory shifts that prioritize alternative fuels or extended ICE timelines.

The financial implications are stark. A BloombergNEF analysis estimates that a one-year delay in the 2035 ban could cost EV-focused automakers up to €15 billion in lost revenue due to stranded assets and disrupted supply chains [4]. By contrast, diversified automakers like BMW are better positioned to absorb such shocks, leveraging their ICE and hybrid portfolios to maintain market share during transitional periods.

Investment Thesis: Diversification as a Competitive Advantage

The strategic case for investing in hybrid and ICE-ready automakers rests on two pillars: regulatory adaptability and downside protection.

1. Regulatory Adaptability: As the EU’s CO₂ framework evolves, automakers with diversified portfolios can pivot more easily. BMW’s investment in e-fuels and biofuels, for example, aligns with potential amendments that allow climate-friendly combustion engines to contribute to emissions targets [3]. This flexibility ensures continued relevance in a market where policy outcomes remain uncertain.

2. Downside Protection: Over-committed EV rivals face existential risks if regulatory timelines are revised. For instance, a delay in the 2035 ban could lead to oversupply in EV components (e.g., batteries) and underutilized infrastructure, eroding profit margins. Diversified automakers, however, can scale back EV investments or redirect resources to hybrid technologies without sacrificing market position.

Conclusion

The EU’s 2035 combustion engine debate is no longer a binary choice between EVs and ICEs. Instead, it reflects a broader recognition that decarbonization must align with technological feasibility, economic competitiveness, and global market realities. For investors, this means prioritizing automakers that embrace diversification and regulatory agility. BMW’s balanced roadmap—combining electrification with ICE innovation—exemplifies this approach, offering a compelling case for long-term value resilience in an era of regulatory uncertainty.

**Source:[1] BMW CEO calls EU's 2035 combustion engine ban a 'big mistake' [https://www.reuters.com/sustainability/climate-energy/bmw-ceo-calls-eus-2035-combustion-engine-ban-big-mistake-sees-strong-2025-sales-2025-09-05/][2] EU automakers question viability of combustion engine ban [https://www.just-auto.com/news/eu-combustion-engine-ban-plan/][3] EU Reconsiders 2035 ICE Ban—CO₂ Rules Under Review [https://natlawreview.com/article/eu-launches-call-evidence-revision-combustion-engine-and-vehicle-emissions][4] European EV Rollback Would Cost Hyundai Billions [https://www.forbes.com/sites/michaeltaylor/2025/08/29/european-ev-rollback-would-cost-hyundai-billions/][5] EU reconsiders 2035 combustion engine ban as U.S. tariff pressures mount [https://www.reccessary.com/en/news/eu-reconsiders-2035-combustion-engine-ban]