EU legislation
EU confirms 90% tailpipe emissions reduction target will replace planned ICE ban in 2035
Following pressure from European leaders including Germany and Italy, the European Commission has confirmed that its plan to ban the sale of new ICE vehicles in the EU from 2035 has been scrapped, with OEMs instead having to comply with a 90% tailpipe emissions reduction target. This decision has divided the automotive sector.
This announcement came as the European Commission presented an automotive package on December 16 aimed at supporting the sector's efforts in the transition to clean mobility. It follows several European leaders, including those from Germany, Italy and Hungary, writing to the commission urging for the 2035 ICE ban to be relaxed in the weeks leading up to this decision.
“Innovation, clean mobility, competitiveness – this year, these were top priorities in our intense dialogues with automotive sector, civil society organisations and stakeholders,” commented Ursula von der Leyen, president of the European Commission. “And today, we are addressing them all together. As technology rapidly transforms mobility and geopolitics reshapes global competition, Europe remains at the forefront of the global clean transition.”
With the plan to ban ICE vehicle sales by 2035 now scrapped, the EU will introduce a 90% tailpipe emissions reduction target, which European OEMs will have to comply with by 2035. The remaining 10%, the EU has said, will need to be compensated through the use of low-carbon steel made in the EU, or from e-fuels and biofuels.
The intention behind this is to allow ICE vehicles – as well as plug-in hybrids (PHEVs), mild hybrids and extended range electric vehicles (EREVs) to “still play a role beyond 2035”, in addition to fully electric vehicles and hydrogen vehicles.
Battery Booster to support EU battery production
One concern regarding the feasibility of a fully electric transformation in automotive supply chains is the availability of batteries. To address this as the industry transitions – albeit more gradually – towards electric vehicles, the European commission has unveiled the ‘Battery Booster’, a €1.8 billion ($2.1 billion) investment in accelerating e the development of a fully EU-made battery value chain.
According to the commission, this investment will provide interest-free loans for European battery cell producers. Alongside this, the EU is set to introduce additional policy measures to “support investments, create a European battery value chain and foster innovation and coordination across member states”.
These measures, it has said, will “enhance the cost competitiveness of the sector, secure upstream supply chains and support sustainable and resilient production in the EU, contributing to the de-risking from dominant global market players”.
With Chinese OEMs entering the EV market in Europe benefitting from a stronger battery supply chain in China, ensuring a reliable supply of batteries in Europe to support the EV transition will be crucial to the competitiveness of European OEMs in the EV market.
OEMs already expanding powertrain mix
The decision to scrap the 2035 ICE ban follows a trend already seen in the strategies of European OEMs – shifting away from ambitious all-electric targets to focus on a broader range of powertrains.
How have European OEMs changed their electrification strategies?
| OEM | Time of strategy adjustment | Reasons for adjustment |
|---|---|---|
| Mercedes-Benz Group | June 2024 | In an interview with a German business magazine, Mercedes-Benz CEO Ola Källenius said the company was investing more than previously planned in combustion engine technology, stating that the technology would last “well into the next decade”. |
| Volvo Cars | September 2024 | Having originally targeted all-electric car sales by 2030, Volvo Cars re-evaluated its strategy, instead targeting 90–100% of its global sales volume by 2030 to be “electrified” cars – including plug-in hybrids – with a 10% allowance for mild hybrids. The company cited “changing market conditions and customer demand” as the main drivers of this shift. |
| Stellantis | September 2025 | At a motor show in Munich, Stellantis’ head of Europe, Jean-Philippe Imparato, confirmed the group would no longer pursue its goal of producing exclusively electric vehicles by 2030, stating that the EU’s original carbon emissions targets for 2035 were “no longer achievable for any carmaker”. |
This is not just a trend in Europe, with Ford announcing
this week it plans to
end production of the F-150 Lightning electric pickup truck in the US. The
move was part of a broader strategy to expand powertrain choice for Ford
customers in order to “meet customer
demand and drive profitable growth”.
How has the industry responded?
With the 2035 ICE ban a polarising subject in Europe, it is perhaps unsurprising that the automotive industry’s reaction to the EU’s latest announcement has been mixed.
According to Reuters, a VW spokesperson described the proposal to drop the 2035 ICE ban as "economically sound", adding: “Opening up the market to vehicles with combustion engines while compensating for emissions is pragmatic and in line with market conditions.”
Similarly, a BMW spokesperson said: "It is an important first step that the EU Commission no longer pursues technology bans as a guiding principle, but recognises the future viability of the combustion engine."
Mercedes-Benz described the move as "a step in the right direction" towards more flexibility for manufacturers and "the necessary technological neutrality", while Renault also welcomed the news, reassured that the EU's automotive package "addresses some of the major challenges facing the European industry".
On the other hand, Volvo Cars’ response was less supportive of the decision. “Weakening long-term commitments for short-term gain risks undermining Europe’s competitiveness for years to come,” a spokesperson said. “A consistent and ambitious policy framework, as well as investments in public infrastructure, is what will deliver real benefits for customers, for the climate, and for Europe’s industrial strength."
This is something Henner Lehne, vice president of global vehicle forecasting at S&P Global Mobility, drew attention to at the ALSC Europe conference in Bonn, Germany earlier this year. “The reality is, electrification will come – it’s just a matter of time,” he said. “But if you ignore it now in favour of short-term wins, you’ll find yourself in real trouble in five years.”
“Chinese OEMs have a long-term strategy,” Lehne added. “They will push, they will grind, and they are not thinking in two-year cycles – they are thinking in ten.”
Stellantis also criticised the EU's decision. "The proposals do not meaningfully address the issues that the industry is facing right now," a spokesperson said. "Specifically, the package fails to provide a viable trajectory for the light commercial vehicles segment, which is in a critical situation, and the 2030 flexibilities requested by the industry for passenger cars."
As for industry associations, the reactions were equally as mixed. “Every euro diverted into plug-in hybrids is a euro not spent on EVs, while China races further ahead,” said William Todts, executive director of lobby group Transport & Environment (T&E). “Clinging to combustion engines won’t make European automakers great again.”
Conversely, the European Automobile Manufacturers' Association (ACEA) issued a statement in which it shared its view that the European Commission’s automotive package is “a first step to creating a more pragmatic and flexible pathway to align decarbonisation with competitiveness and resilience objectives.”
“Today’s proposals rightly recognise the need for more flexibility and technology neutrality to make the green transition a success,” said Sigrid de Vries, ACEA director general. ’This constitutes a major change compared to the current law.”
However, de Vries did express some caution, saying that “the devil can be very much in the detail” and noting that the group would “study the package, and work with co-legislators to critically strengthen the proposals where needed”.
What else was covered by the EU's automotive package?
To incentivise EV adoption and manufacturing in Europe, the EU will offer “super credits” for small affordable electric cars made in the EU.
Acknowledging that EV uptake in the vans segment has been structurally more difficult, the European Commission announced that it would reduce the 2030 CO2 target for vans from 50% to 40%. It also proposed a “targeted amendment” to the CO2 emission standards for heavy-duty vehicles, with a flexibility easing the compliance with the 2030 targets.
For corporate vehicles, it noted that member states must set mandatory targets to support the zero- and low-emission vehicle uptake by large companies.
