France and Germany's new automotive deal proposes changes to emissions targets and 'Made in Europe' eligibility for the UK
On October 16, 2026, France and Germany announced that they have reached an agreement on a joint approach to securing the future of the European automotive industry. This joint plan includes proposals to further soften CO2 emissions reduction requirements and include the UK as a trusted partner in the EU's 'Made in Europe' rules.
Friedrich Merz, chancellor of Germany (left) with Emmanuel Macron, president of France (right)
German Federal Government / Tobias Koch
In a joint statement, the governments of France and Germany noted that the two countries share the same clear ambition: to successfully transform Europe's automotive industry while maintaining the European Union's climate ambition and ensuring that the cars of the future are produced in Europe.
Both countries reaffirmed their commitment to achieving substantial reductions in CO2 emissions while strengthening Europe’s capacity to develop and manufacture the next generation of electric vehicles. They shared their belief that the "comprehensive package" of policies they've proposed combine an ambitious European decarbonisation pathway with the regulatory flexibility needed to reflect different market realities and technological conditions
"Europe must be a continent that innovates, invests and produces, while protecting the climate and safeguarding jobs," the joint statement read. "This is the purpose of our commitment and the guiding principle of our joint approach."
So what proposals comprise the Franco-German automotive plan?
Changes to the 2035 emissions reduction target
According to reports, France and Germany intend to maintain the 90% tailpipe emissions reduction target that the European Commission proposed in December 2025 – which would replace the EU’s existing plan to phase out the sale of new internal combustion engine (ICE) cars and vans by 2035.
Under the Franco-German plan, however, the requirement to offset the remaining 10% through measures such as the use of low-carbon steel and alternative fuels would be removed.
This is not the only change to the 2035 emissions reduction target proposed by France and Germany, though. The package also proposes multi-year averaging, assessing OEMs' CO2 reduction compliance over multiple years, rather than on a strict annual basis. If this change were adopted, it would allow manufacturers greater flexibility to compensate for higher emissions in one year with lower emissions in another.
Additionally, the proposal seeks to freeze the tightening of the utility factor for plug-in hybrid vehicles (PHEVs) until 2030. This factor estimates the proportion of a vehicle’s driving that takes place on electric power, influencing the CO₂ emissions attributed to it under EU regulations.
A lower assumed electric driving share means a plug-in hybrid is assigned higher calculated CO₂ emissions, potentially making it harder for automakers to meet their fleet targets. Freezing the factor’s tightening would give manufacturers greater flexibility in meeting those targets in the short term, while retaining PHEVs as part of their powertrain mix.
'Made in Europe' eligibility rules
Another significant proposal that is reported to be included in the Franco-German automotive policy package is a plan to ensure the 'Made in Europe' rules for vehicles apply to not just the 27 current EU member states but also any European partner participating within the EU single market as of January 1, 2020.
This would make the UK – which left the EU on January 31, 2020 – eligible for 'Made in Europe' status.
What is the Industrial Accelerator Act and what does 'Made in Europe' mean?
The European Commission’s proposed Industrial Accelerator Act (IAA) is aimed at strengthening European industrial manufacturing and accelerating investment in strategic technologies, while supporting the EU’s decarbonisation objectives. It is part of a wider effort to improve the competitiveness of European industry, reduce reliance on non-EU suppliers and increase demand for goods manufactured in Europe.
A central element of the proposal is the introduction of ‘Made in Europe’ requirements for selected products and technologies, giving preference to European-made goods in certain public procurement processes and publicly supported schemes. The rules are intended to create more predictable demand for European industrial production and encourage investment in domestic manufacturing capacity. Discussions around the IAA are still ongoing, and the precise scope of the act, including which countries and goods qualify, will depend on the final legislative text.
The proposals have implications for automotive manufacturers and their suppliers because eligibility for these preferences could influence sourcing, investment and production decisions. The definition of ‘European-made’ goods will be key focus of the discussions, with non-EU trading partners apprehensive about how the act's final form could impact trade and industrial competitiveness.
Although officials in Germany have historically supported the widening of 'Made in Europe' status to significant EU trading partners, this joint proposal marks a development in France's position on the matter.
"European taxpayers’ money should support [European] workers and European factories,” France's minister delegate for industry, Sébastien Martin, told reporters as recently as September.
On the UK specifically, Martin noted that a trading relationship between the UK and the EU can still exist, but fundamentally it was the UK's decision to leave the trade bloc.
"At the end of the day, if you are not part of the internal market and if you are not contributing to the financial capacity of the internal market, you don’t get the same kind of protection,” added Benjamin Haddad, France’s minister delegate for European Affairs.
A Downing Street spokesperson told The Guardian that, if confirmed, the UK government would "welcome the objective to have UK included in the Industrial Accelerator Act", adding that this would be "good news for the British automotive industry and the jobs and investment it supports across the UK".
At the end of September, Mike Hawes, chief executive of the Society for Motor Manufacturers and Traders (SMMT), warned that the benefits of the trading relationship between the UK and the EU are "at risk if the European Commission’s ‘Made in Europe’ proposals exclude UK-built vehicles from EU market incentives and procurement schemes".
He acknowledged that the EU is rightly focusing on strengthening its industrial base but shared his view that "restricting access for UK manufacturers in their largest market would be self-defeating". He said the move would be mutually detrimental to the competitiveness of both economies "at precisely the moment the industry must invest harder and faster in zero-emission mobility".
France's apparent U-turn on the UK's 'Made in Europe' eligibility is a positive signal for the UK automotive industry's hopes of maintaining a relationship with the EU that supports competitiveness, especially with Chinese OEMs gaining an growing market share in both the UK and EU markets.
However, there is a long way to go before a final decision can be made on this matter, and France and Germany represent just two of the countries at the table as discussions over the Industrial Accelerator Act (IAA) progress. All eyes will be on the UK-EU summit, which was recently confirmed to be taking place in Brussels on November 20 this year, for further talks around where the UK sits as a trading partner with the EU as the IAA takes shape.
"A threadbare Brexit deal has damaged our economy," UK prime minister Andy Burham has said ahead of the summit next month. "Britain can do so much better, so at this summit I want to take practical steps that pay off for the British public."
In addition to the UK, Norway – which has never been an EU member state but participates in the EU single market through the European Economic Area – could also be granted 'Made in Europe' status if the Franco-German proposal were to be adopted. However, it is understood that other key EU trading partners outside the single market, such as Turkey, would fall outside the proposal's eligibility criteria.
Although this proposal would offer countries like the UK and Norway the opportunity to be eligible for 'Made in Europe' status, it is worth noting that this eligibility would not be automatic and would require some compromise from these countries. It has been reported that the plan outlines that to be eligible for 'Made in Europe', non-EU trading partners would have to agree to full reciprocity and "dynamic alignment with EU conditions for investment from third countries and with EU trade protection measures".
For the UK, which has taken a different approach to the EU on tariffs on Chinese-built electric vehicles, this could present a difficult choice. The UK government would have to weigh the potential benefits of qualifying for 'Made in Europe' status against the implications of aligning more closely with EU measures to restrict trade with non-EU countries.
Recognition of low-carbon fuels as zero-emission
According to reports, the Franco-German proposal also seeks to recognise cars powered by renewable and low-carbon fuels as zero-emission vehicles (ZEVs) for regulatory purposes. This would provide a route for certain ICE vehicles to remain viable under the post-2035 framework, rather than relying exclusively on battery-electric or hydrogen vehicles.
The distinction is that this is a proposed regulatory classification, not a claim that these vehicles produce zero emissions throughout their operation or life cycle. It is not yet confirmed which fuels and vehicles would qualify as zero-emission under these proposals.
Reaction to the Franco-German automotive policy package
France and Germany's joint proposal has drawn mixed reaction from the automotive world, particularly around its proposal to allow the UK to be eligible for 'Made in Europe' status.
Reaction from OEMs
The Franco-German package has been positively received by many major OEMs. Stellantis welcomed the agreement as "an important step toward finalising the European automotive package", believing it could help to bring the process to "a rapid conclusion", providing the European automotive industry with the flexibilities and clarity it needs to focus on innovating and delivering for its customers.
Additionally, a Volkswagen spokesperson told Reuters that although the company still needs to analyse the agreement in more detail, it welcomes the "sensible flexibilities in the CO₂ fleet regulation" proposed, noting that they will help the automotive industry to make its contribution to climate protection without jeopardising its competitiveness.
"The ‘Made in Europe’ proposals from both governments have our full support," the Volkswagen spokesperson commented. "They provide a clear incentive for production and investment in Europe. We also welcome the fact that France and Germany are placing a clear focus on the 27 member states of the European Union and, in addition, are setting out a path for the UK to join the common strategy."
Renault Group shared a similar position. "Obviously, the UK should be part of the IAA because it is part of Europe's automotive ecosystem," said François Provost, CEO of Renault Group, emphasising that the automotive industrial policies of the EU and the UK should be consistent with one another in order to protect the industrial competitiveness of both parties from Chinese competition.
While several OEMs have shown support for the UK's inclusion in the IAA as set out in the Franco-German proposal, some also called for other trading partners to be considered for the same treatment.
Renault has reportedly lobbied for vehicles manufactured in Morocco and Turkey – which together account for 32% of its global production – to be eligible under the proposed ‘Made in Europe’ rules, according to French newspaper Le Monde. Separately, Toyota Motor Europe has called for a broader approach that would recognise trusted trading partners beyond the EU, explicitly naming the UK, Turkey and Japan as countries that should be included.
"We welcome any discussion on the inclusion of the UK but we would like to see this deal expanded to other trusted partners – such as Turkey and Japan – whose continued close collaboration can support European competitiveness in the automotive industry," the Toyota spokesperson said. "Critical future investment considerations, like the current battery production study, would benefit from wider inclusion."
Reaction from automotive groups
It is amongst industry groups that a much more varied reaction to the Franco-German proposal can be found. The European Automobile Manufacturers’ Association (ACEA) commended the agreement for "rightly" reaffirming technology neutrality, setting a "more manageable direction" for 2035 and providing incentives for cars made in Europe. However, it shared in a statement its belief that "the text fails to propose critical win-win flexibilities to help meet the CO2 targets, such as using the full potential of offsetting emissions with low-carbon materials, or starting averaging in 2028 to accelerate the ramp-up of battery-electric vehicles (BEVs) well ahead of the 2030 target".
ACEA also described France and Germany's proposal for the IAA as "highly ambitious" with its "narrow geographical scope and 80% fleet-wide target and claimed that it fails to recognise the the value added by vehicle manufacturers. Furthermore, it claimed that the agreement "overlooks the specific needs of other vehicle segments that are crucial to the competitiveness of European industry", highlighting battery-electric vans and heavy-duty vehicles as areas overlooked in the proposed Franco-German approach.
The European Association of Automotive Suppliers (CLEPA) expressed support for the joint position agreed by France and Germany but warned that weakening the 'Made in Europe' threshold under the IAA could put at least 150,000 high-skilled supplier jobs at risk.
“Industry needs decisions soon to ensure fair international competition and a realistic path towards reducing transport emissions,” said Matthias Zink, CLEPA president and CEO of powertrain and chassis at Schaeffler. “Technology openness and European value creation must now go hand-in-hand to shield industrial capacity while meeting climate goals. EU institutions must act with real urgency.”
Meanwhile, the German Association of the Automotive Industry (VDA) said the compromise between Germany and France could send an important signal that maintaining industrial competitiveness and jobs, as well as the transformation to climate-neutral mobility, must be considered together.
"The agreement between Germany and France on the European Commission's proposals for the Industrial Accelerator Act (IAA) and the Automotive Package is an important step, but falls short of the necessary adjustments in key areas," VDA president Hildegard Müller commented. "Further discussions and adjustments are therefore needed in the negotiations within the European Council and Parliament."
Perhaps the strongest objection to the Franco-German proposal came from Anna Krajinska, senior director for vehicles and industrial transformation at Transport & Environment (T&E), who described the deal as a "historic mistake that jeopardises Europe’s position in the global EV and battery race".
Krajinska argued that the proposed battery localisation requirements would do little to encourage further investment in European production, requiring just 10% of battery cells to be sourced in Europe in 2028-2029 and 20% in 2030-2031, despite more than 50% of cells used in electric cars sold in the EU already being produced in Europe, according to 2025 data. T&E estimates that the share of European battery production capacity backed by secured demand would fall from the currently predicted 95% to 12% in 2027 and from 97% to 25% in 2030, putting investment and jobs at risk.
Krajinska also warned that weakening car CO2 standards would reduce the expected electric share of new car sales in 2030 from 57% to 43%, slowing the transition at a time when European manufacturers face growing competition from China and drivers face high fuel costs. She further criticised the proposal's new category for vehicles running on eligible fuels, arguing that it could prolong dependence on oil and divert investment from electrification.
Instead, T&E is calling for stronger European battery sourcing requirements, ambitious electrification targets for large company fleets and the rejection of the proposed category for cars running on low-carbon fuels, arguing that a stronger market for electric vehicles is essential to secure demand for European automotive manufacturing.
