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Europe's auto industry future may be electric even after EU climbdown
Published by Global Banking and Finance Review
Posted on December 18, 2025
4 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 18, 2025
4 min readLast updated: January 20, 2026
The EU's relaxed 2035 deadline gives Europe's carmakers more time to sell hybrids, but electric vehicles remain the future, analysts say.
By Nick Carey
LONDON, Dec 18 (Reuters) - Brussels' proposal to abandon a 2035 deadline for a total shift to fully electric driving allows Europe's legacy carmakers more time to sell hybrids, but for the longer term, EVs are still the future, analysts and experts said.
On Tuesday, the European Commission published plans to abandon an effective 2035 ban on combustion engine cars, after lobbying from the region's auto sector, helping them better compete against fast-moving Chinese rivals.
Plug-in hybrids, range-extended EVs, which use a small combustion engine to recharge the battery, and even conventional engines would remain legal beyond 2035.
Brussels also proposed a new category of small EVs with extra credits for models built in Europe - concessions that industry analysts say deliver much of what carmakers lobbied for.
TIME TO CATCH UP WITH THE CHINESE?
"The Commission has allowed Europe's car industry to make choices and have a chance to compete," said Phil Dunne, a managing director at consultancy Grant Thornton Stax.
"Hopefully it allows Europe's industry to catch up with the Chinese" with cost-competitive EVs, he added.
Premium brands such as Mercedes and BMW will have longer to sell plug-in hybrids before selling only full EVs.
With a wide range of smaller models, such as the Fiat 500 and Clio, Stellantis and Renault, should benefit from the new subsidised category of small EVs for the continent's city-dwellers.
The EU's stance is very different to that of the United States, where President Donald Trump has withdrawn support for EVs.
CHINESE COMPETITION AS EU EV SALES HAVE JUMPED THIS YEAR
Last year, Brussels imposed tariffs on Chinese-made EVs, but it has done little to stop brands like Changan expanding in Europe.
BYD and other Chinese companies face no tariffs on imported plug-in hybrids and a number of Chinese companies sell combustion engine models in markets, including Poland where EV sales are low.
Before Tuesday's news, consultancy AlixPartners forecast Europe's fully-electric cars would only make up 62% of sales by 2035 because it was not convinced the ban could be enforced.
Partner Nick Parker said he did not expect any major changes to the consultancy's forecast.
A slower transition to electric would, however, give markets time to build charging infrastructure, one of the main reasons for the slow take-up of EVs.
EU fully-electric car sales rose by 25.7% year-on-year through October, accounting for 16.4% of all sales, according to industry data. They make up a tiny portion of overall sales in southern and eastern Europe.
CARMAKERS POURED BILLIONS INTO DESIGNING EVS
The change in policy is a blow for automakers and suppliers that have spent tens of billions of euros designing electric cars and expanding factory capacity based on EU policy that only became law in 2023.
But allowing traditional automakers to use different technologies may spur them to partner on developing affordable EVs, such as the tie-up between Ford and Renault made public last week to develop small EVs in Europe.
The day before the EU announcement, the U.S. automaker made public a $19.5 billion writedown and plans to scrap several electric models.
"This will end up driving more cooperation and platform-sharing," between automakers, said Joe Stevenson, CEO of British startup Anaphite, which is developing dry coating for battery electrodes that could cut the cost of an EV.
Ahead of Tuesday's news, Ford CEO Jim Farley urged Brussels to pick one policy and stick to it, rather than shifting every few months. As recently as March, the Commission gave the car industry "breathing space" by allowing automakers to comply with 2025 emissions targets over three years, with further changes nine months later.
"That's not the way to do long-term capital investment planning," Farley said. "We need certainty."
(Reporting by Nick Carey;Editing by Josephine Mason and Barbara Lewis)
An electric vehicle (EV) is a type of vehicle that is powered by electricity instead of traditional fuels like gasoline or diesel. EVs use electric motors and batteries to operate.
A hybrid vehicle is a car that uses two or more types of power, typically a combination of an internal combustion engine and an electric motor, to improve fuel efficiency and reduce emissions.
The European Commission is the executive branch of the European Union responsible for proposing legislation, implementing decisions, and upholding the EU treaties. It plays a key role in shaping EU policies.
Plug-in hybrids are vehicles that can be charged from an external power source and combine a conventional internal combustion engine with an electric motor, allowing for improved fuel efficiency.
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