EU 2035 Car Emission Ban: Why Brussels Is Forced to Ease the Rules

This regulatory shift comes as the European automotive supply chain is already undergoing one of its deepest restructurings in decades. Component suppliers have cut about 104,000 jobs across 2024–25 while creating only 7,000 new positions. Up to 350,000 further jobs could be at risk by 2030.

The question facing Europe is therefore no longer simply whether combustion engines should survive beyond 2035. It is whether the continent can afford to pursue electrification at the same speed while its own manufacturers lose ground to Chinese competitors.

The target is becoming a proxy for industrial policy

The original 2035 rule, adopted as part of the EU’s Fit for 55 package, requires a 100% reduction in average tailpipe CO₂ emissions from new cars and vans compared with the baseline. In practical terms, that removes new internal combustion engine vehicles from the market.

The proposed 90% threshold changes the political calculation. Manufacturers would still have to make most of the transition to zero-emission vehicles, but they would gain another route to compliance.

That flexibility is being demanded by a political coalition that includes the European People’s Party and European Conservatives and Reformists, backed by parts of the automotive industry and countries such as Germany and Italy. The opposing camp includes the Greens, parts of the Socialists and Democrats and liberals, alongside seven EU countries - Denmark, France, Luxembourg, the Netherlands, Portugal, Spain and Sweden - that support retaining the 100% target.

Their argument is straightforward: weakening the rules now could undermine investment in electric vehicles just as Chinese manufacturers are gaining ground.

There is an uncomfortable counterargument. Europe may already be weakening the industrial base needed to carry out the transition.

Volkswagen Group has agreed a restructuring programme involving about 50,000 additional job cuts, taking total ongoing and planned reductions to roughly 100,000 positions. It plans to halve its product range by 2035, reduce research and capital expenditure for 2027–31 and is questioning the future of four German plants.

Stellantis has reported €22.2bn in impairments and announced spending cuts. Jaguar Land Rover is cutting 4,000 jobs. Bosch, Continental, ZF Friedrichshafen and Schaeffler are also reducing their workforces.

A regulatory concession cannot reverse all of that.

China changed the economics before Brussels changed the rules

Europe’s problem is that the competitive shock did not come from environmental regulation alone.

Chinese carmakers have built an advantage across the entire EV production chain, from batteries and raw materials to manufacturing scale and cost control. European producers face higher energy costs, expensive battery materials, weaker charging infrastructure and the withdrawal or reduction of consumer subsidies in important markets.

Chinese manufacturers have also been prepared to attack European suppliers on price. Component companies are facing demands from Chinese OEMs for reductions of around 10%, adding pressure to an industry already operating on thin margins.

The market shift is becoming difficult to dismiss. Chinese brands accounted for close to 10% of new car sales in Europe in 2026 and are projected to reach about 16% by 2030. By June 2026, they had captured roughly 34% of the European plug-in hybrid market.

This is why the 2035 debate has become an industrial argument disguised as a climate argument.

Europe can impose increasingly demanding standards. But regulation cannot by itself create cheaper batteries, lower electricity prices, integrated supply chains or the manufacturing scale enjoyed by Chinese competitors.

Indeed, European manufacturers now face a difficult choice. They can continue pouring capital into dedicated EV platforms while margins remain under pressure, or preserve some flexibility around combustion and hybrid technologies and risk falling further behind in the technologies that are reshaping the market.

A compromise built around the industrial ecosystem

The Commission’s proposed 90% target attempts to solve that dilemma by broadening the definition of what counts towards compliance.

Low-carbon steel is one element. The automotive sector consumes about a fifth of Europe’s steel output, so linking vehicle emissions policy to European steel production could create demand for a domestic industrial sector that is itself under pressure.

The mechanism would allow manufacturers to use steel produced through technologies such as direct reduced iron using green hydrogen or electric arc furnaces powered with scrap and renewable energy. The problem is that such steel remains scarce and expensive.

E-fuels present a similar contradiction.

Synthetic fuels produced from captured CO₂ and green hydrogen could allow combustion engines to remain part of the vehicle market while theoretically achieving net-zero lifecycle emissions. But producing them requires large amounts of energy and current volumes remain limited.

Advanced biofuels offer another route, but the broader political logic is the same: instead of forcing the automotive sector towards a single technological outcome, Brussels is creating room for several industrial technologies to coexist.

That may provide breathing space for European manufacturers. It also risks spreading scarce investment across too many competing solutions.

Chinese factories in Europe complicate the protectionist answer

The political response is becoming more defensive.

France is advocating regulatory advantages linked to European-based production, while Chinese manufacturers are increasingly localising production inside the EU. BYD is establishing a manufacturing presence in Hungary and Chery in Spain.

That creates a problem for European policymakers. The more Chinese companies manufacture inside Europe, the harder it becomes to draw a simple line between foreign competition and European industrial production.

A policy designed to protect European factories can eventually benefit Chinese-owned factories operating on European soil.

This is particularly important because Chinese manufacturers do not necessarily need Europe to abandon electrification. They can compete successfully under an ambitious zero-emission regime if their cost advantages remain intact.

A retreat from the 100% target could therefore help European incumbents without solving the competitive problem that prompted the retreat in the first place.

The risk is that flexibility becomes postponement

For Volkswagen and other European manufacturers, regulatory flexibility has an immediate financial attraction. It gives companies more time to extract value from existing combustion and hybrid assets while reducing the pressure to make every investment decision around an exclusively electric future.

But it does not make the underlying assets more competitive.

Modern EV production also requires fewer labour inputs than conventional vehicle manufacturing. That means even a slower transition cannot guarantee the restoration of jobs that have already disappeared. The scale of the restructuring across suppliers points to a deeper transformation than the timing of the 2035 deadline.

The European automotive industry therefore faces a paradox. The companies most likely to benefit from a 90% target are also those undergoing the largest reductions in employment and production capacity.

The target may buy time. It cannot guarantee what happens during that time.

For investors, the problem is different. Europe has spent years signalling that electrification is the direction of travel. Companies have committed capital accordingly, including to EV platforms, battery supply chains and related infrastructure. Changing the regulatory signal now introduces uncertainty over the value of those investments.

For consumers, the result may be equally awkward: continued high prices for mass-market EVs combined with uncertainty over residual values and the technologies that will dominate the market.

Europe’s climate policy is becoming industrial policy

The significance of the Brussels stalemate extends beyond cars.

For years, the EU’s climate framework relied heavily on regulation to create predictable market incentives. The 2035 rule was one of its clearest examples: establish the endpoint, and industry would reorganise around it.

The automotive crisis is testing that model.

Europe is now attempting to reconcile climate targets with energy costs, employment, steel production, battery supply chains, trade policy and competition from China. The result is less a pure green transition than a form of industrial defence.

That may be politically unavoidable. But it exposes a difficult strategic reality.

If Europe cannot compete with Chinese EV manufacturers under a strict electrification regime, relaxing the rules may protect some existing industrial capacity while leaving the underlying productivity gap untouched. If it keeps the rules unchanged, it risks accelerating the restructuring already visible at Volkswagen, Bosch, Continental and across the supplier base.

The 90% proposal sits precisely between those outcomes.