EU legislation
EU delays proposals on 2035 ban on new ICE vehicle production as several European countries call for it to be eased
The European Union has reportedly delayed the release of proposals surrounding the potential easing of its ban on new CO2-emitting vehicles by a week, following calls from several European nations including Italy and Germany to push back this deadline as automakers struggle with high energy prices, a shortage of batteries and insufficient demand for electric vehicles.
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.
