Originally, new proposals were expected on December 9, but a spokesperson for the European Commission confirmed to Reuters that this had been pushed back until December 16.
The chancellor of Germany, Friedrich Merz, confirmed on November 28 that he would send a letter to Ursula von der Leyen, president of the European Commission, urging the EU to ease plans to outlaw the production of ICE vehicles from 2035. Following this, six other countries – Bulgaria, the Czech Republic, Hungary, Italy, Poland and Slovakia – also reportedly wrote to the European Commission to ask for the 2035 date to be extended.
As per a review clause in the regulation introduced in 2023,
which was intended to “provide the right push for the automotive industry to
shift towards zero-emission mobility while ensuring continued innovation in the
industry”, the European Commission is set to “thoroughly assess the progress
made towards achieving the 2035 100% emission reduction targets and the possible need to
review them”.
This assessment will take place in 2026, and will “take into
account technological developments, including with regard to plug-in hybrid
technologies and the importance of a viable and socially equitable transition
towards zero emissions”.
But with OEMs seeking certainty on the future of vehicle
production in order to align their strategies accordingly, how might a change
in this EU regulation impact automotive supply chains?
Supply chain implications
Against an existing backdrop of complexity – from geopolitical
tensions to supply shortages – electrification adds another layer of complexity
for OEMs, tier suppliers and logistics service providers in the automotive
industry to contend with. Add to this uncertainty around the future stability
of the EU framework for electrification and its long-term direction, and you have
a landscape in which strategic planning and long-term investment become
significantly more challenging.
“If you are an OEM now you have to provide multiple
powertrains because that shift to electric vehicles (EVs) is somewhere in
transition depending on where in the world you are,” David
D’Annunzio, global vice-president and vertical head for automotive at DP World,
told Automotive Logistics earlier this year. “While an EV has fewer
parts and is easier to assemble, there are multiple variants of internal
combustion and EVs, often being made in the same factory, increasing the
complexity of assembly.”
If the 2035 ICE ban is delayed, OEMs are likely to continue
manufacturing a mix of ICE, plug-in hybrid and electric vehicles. Therefore, in
terms of plant logistics, the longer OEMs produce multiple powertrains, the longer
this particular complexity will exist.
Battery bottlenecks
One of the biggest ways in which the supply chain must
transform alongside the EV transition is by securing the necessary battery
availability in Europe to allow OEMs to produce the volume of vehicles required
to meet targets.
OEMs have already begun to invest in battery production in
Europe to future-proof the region’s automotive supply chain. Examples of such
investment over the past five years are numerous: JLR’s parent company Tata
Group announced that it would build a £4 billion ($5.2 billion) battery cell
gigafactory in the UK in 2023; VW is set to begin production at its battery
factory in Germany – the first of up to six expected to open in the next five
years – before the end of the year; and the
first Automotive Cells Company (ACC) battery gigafactory began operations in 2023
as part of a joint venture from Stellantis, Mercedes‑Benz
(Daimler) and TotalEnergies which will see three gigafactories operational
across Europe by 2030.
Reimagining logistics for an electric world
It’s not just the production of batteries that complicates
matters – their transportation is also an aspect to consider. As EV batteries
are categorised as hazardous goods under UN international dangerous goods
regulations for road and air transport, moving them requires specialised
hazardous goods logistics. So just as OEMs will have to alter operations to accommodate
a shift towards EVs, so too will the logistics industry.
Plus, LSPs will also need to ensure the vehicles they use to
transport auto parts and finished vehicles comply with EU emissions standards as
regulation tightens. According to Automotive Logistics’ ‘European
Automotive Logistics Market Report 2025-2035’ report, road-based transport accounts
for more than half of the European automotive logistics market in 2025, and –
although a slight shift towards rail-based logistics is expected over the next
decade – the majority will require vehicles that will have to meet EU
standards.
This will require significant investment from LSPs, although
most have already begun acting upon long-term strategies to decarbonise their
entire operations.
Another way in which automotive logistics operations have
already begun to adapt to the electrification shift is by designing a reverse
logistics network for the recycling and reuse of lithium-ion batteries.
Ceva Logistics is doing just this, building
a network of 15 battery logistics centres across ten countries in Europe by
2027 to launch a reverse logistics service.
But certainty on the direction of the EU’s long-term electrification
strategy will be necessary for LSPs in Europe to appropriately align their
investment plans with those of OEM, which in turn will be looking to prepare
their supply chains in accordance with wider regulatory frameworks.
If the volume of EVs produced and sold over the next decade
does not meet current projections, early adopters preparing their operations
for widespread electrification could see their initiative go unrewarded,
potentially affecting their bottom line.
EU policy impact in Europe
Earlier this year, KPMG identified that the introduction of
the EU’s regulation aiming to ban new ICE vehicle production from 2035 “has led
to shifts in previously established national targets” and has highlighted the division
regarding zero-emission vehicle sales in Europe.
Following the announcement of the 2035 ban, Spain, France,
Germany and Denmark all aligned their national electrification targets with
this date. Others including Italy, Belgium, Finland and the UK also have a
target of 2035 for electrification, in line with the EU’s incentive mechanism.
As such, it’s fair to say that any decision made next year during
a review of the ban will certainly have a ripple effect throughout Europe,
impacting national electrification strategies and the continent’s automotive supply
chain.
One prominent concern amongst domestic OEMs in Europe as the
industry transitions away from ICE vehicles is the growing market share of Chinese OEMs in
the EV sector. Unlike in Europe, where uncertainty surrounding timelines for a
fully electric future persist, China has made clear that it is aiming for EVs
to “dominate” new vehicle sales by 2035.
Despite having announced no plans to ban ICE vehicle production,
China’s strict production-side mandates for OEMs to produce “new energy
vehicles” has provided certainty that Europe’s fragmented regulatory landscape
could not.
Competing with China as automotive goes electric
McKinsey analysts recently identified that “the transition
from ICE to electric drivetrains requires not only retooling production but
also redefining value chains and core competencies”.
They noted that “heavy investments in new production
facilities and next-generation vehicle technology will continue to be required
in coming years, but the sector can sustain this level of investment only if it
continues to produce healthy balance sheets”.
Analysis from a recent McKinsey report showed that targeted
investment of around €200-300 billion ($233-350 billion) will be required to
ensure the competitiveness of Europe’s battery industry alone.
Engaging with European governments to help fund
infrastructure such as battery gigafactories and charging networks, collaborating
openly with supply chain partners, and accelerating development will be key for
European OEMs to navigate the electrification process and compete with the
rapid growth of Chinese OEMs in the European market, analysts said.
“These approaches can help players make step changes in
performance, cost and time to market for technical solutions, as well as build
localised, diversified, and resilient supply chains,” McKinsey noted.
Support and opposition for the 2035 ICE ban
Although German chancellor Friedrich Merz has made his position on the EU’s 2035 ban on new ICE vehicles clear, the industry as a whole is divided on the matter.
Industry for 2035 – a group supported by Transport & Environment and the Climate Group’s EV100 initiative with the backing of 76 companies the automotive, clean tech, transport and energy sectors in Europe – has consistently called for the EU to stick to its planned timeline for the phasing out of ICE vehicles by 2035.
In September 2024, Industry for 2035 issued an open letter to Ursula von der Leyen, president of the European Commission, calling for her to “stand firm” on the target. The letter, signed by executives from OEMs such as Volvo Cars, Polestar and Rivian – as well as the likes of Maersk and Uber, asserted that this milestone clearly signalled intent to position the European automotive sector as a leader in clean mobility, energy security and industrial innovation.
The letter outlined the signatories’ views that the 2035 target initiated significant change, from reskilling workers to sourcing more responsible materials, as well as investment in smart technologies like vehicle-to-grid to ensure resilience and flexibility in Europe’s power grids.
“Delaying the 2035 target, or broadening focus after 2035 to less efficient, transitional technologies, would stall these collective steps forward, erode investor confidence and permanently hand the advantage to global competitors – who will continue to advance,” the signatories said. “Regions like China have moved faster on electric cars and with greater strategic focus. Hesitate now, and Europe risks deeper dependency, lost influence and falling irreversibly behind.”
On the other hand, the European Automobile Manufacturers’ Association (ACEA) issued a statement on in November this year in which it warned that the targets were drifting out of reach and called for “a smarter, more realistic approach that recognises the distinct challenges of cars and vans and supports a competitive, consumer-driven transition to zero-emission mobility”.
