By Philip Blenkinsop

STRASBOURG, ‌Dec 16 (Reuters) - The European Commission proposed on Tuesday dropping the EU's effective ban on new combustion-engine cars from 2035 ‍by allowing ‌continued sales of some non-electric vehicles following intense pressure from Germany, Italy and Europe's auto sector.

The EU executive appears to have ⁠bowed to calls from carmakers to keep selling plug-in hybrids ‌and range extenders that burn fuel as they struggle to compete against Tesla and Chinese electric vehicle makers. 

Current EU rules require all new cars and vans from 2035 to have zero emissions. Under Tuesday's proposal, the target would shift to a 90% cut in CO2 emissions from 2021 levels, instead ⁠of 100%.

Automakers would need to offset the remaining emissions by using lower-carbon steel made in the EU and synthetic e-fuels or non-food biofuels such as agricultural waste ​and used cooking oil.

The plan also gives automakers a three-year window from 2030 to ‌2032 to cut car CO2 emissions by 55% from 2021 ⁠levels, while the 2030 target for vans would be eased to 40% from 50%.

EU CLIMATE CLIMB-DOWN AS FORD SCRAPS EVS

The moves, which require approval from EU governments and the European Parliament, mark the bloc's biggest retreat from its green policies enacted over ​the previous five years.

It follows Ford Motor announcing on Monday a $19.5 billion writedown as it axes several EV models, in response to the Trump administration's policies and weakening EV demand.

European carmakers including Volkswagen and Fiat owner Stellantis have also flagged soft EV demand and urged looser targets and lower fines for missing them. Automotive lobby ACEA called the moment "high noon" for the sector.

German manufacturers are ​under particular ‍strain as they lose ground in China ​to local rivals and face growing competition at home from Chinese EV imports. EU tariffs on Chinese-built EVs have offered only limited relief.

EU LAGGING CHINA IN EV RACE

The EV industry warned that easing emissions targets could undermine investment and leave Europe falling further behind China in the shift to cleaner driving.

"Moving from a clear 100% zero-emissions target to 90% may seem small, but if we backtrack now, we won't just hurt the climate. We'll hurt Europe's ability to compete," said Michael Lohscheller, CEO of Swedish EV manufacturer Polestar.

William Todts, ⁠executive director of clean transport advocacy group T&E, said the EU was playing for time while China was racing ahead.

"Clinging to combustion engines won't make European automakers great again," he said.

The Commission ​also outlined plans to boost EV uptake in corporate fleets, which account for about 60% of new car sales in Europe. National targets for 2030 and 2035 would be set based on GDP per capita, leaving countries to decide how to meet them.

Industry groups have cited Belgium's tax breaks for EV company cars as a model.

The Commission further ‌proposed creating a new regulatory category for small EVs, subject to lighter rules and eligible for extra credits towards CO2 targets if made in the EU.

(Reporting by Philip Blenkinsop. Additional reporting by Charlotte Van Campenhout and Nick Carey. Editing by Joe Bavier and Mark Potter)