EU members agreed in 2023 to require that all new light vehicles sold as of 2035 be fully zero emission. The mandate is technology neutral, i.e., it does require that all vehicles be battery electric — hydrogen fuel cell EVs are an option — although this is becoming the de facto path.

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As we have seen in the past few years, the trajectory of clean vehicle penetration is not linear. It is heavily influenced by incentives that come and go, by the introduction of new models, or the change in general narrative. One could say the 2024 data point was off the linear trajectory towards the 2035 target as BEV penetration plateaued around 14%. This is causing some doubts. However, a number of lower-priced vehicles are being introduced that will boost the BEV market share.

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A review clause embedded in the regulation offers an opportunity to revisit it. In 2026, progress towards the 2035 target is to be assessed and changes in scope (e.g., extension to 2-wheelers) to be considered. Several stakeholder groups insist this review should be moved forward to 2025 — uncertainty is detrimental to the industry’s health — and the 2035 target be reconsidered.

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The European auto industry is under significant stress already, more so than its Chinese and U.S. counterparts. This is due in part to volumes not having fully regained their pre-Covid level. The 2026 review clause is certainly an opportunity to reduce this stress.

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Should the EU confirm the 2035 target to support sustainability goals and “force” the industry at large to close the competitiveness gap vs. China? Or should the mandate be relaxed to give the industry (and the market) more time to adjust while preserving “reasonable” levels of profitability? Should some flexibility be introduced or additional financial assistance be provided?

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The Case for Relaxing the EU Mandate

Industry groups amongst others are lobbying for a relaxation of the 2035 mandate. Arguments include lack of technical readiness, market conditions (e.g., insufficient customers’ appetite), and economic risks for the industry at large.

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Several technical arguments can justify revisiting the mandate. They include the lack of a sovereign battery supply chain (the world relies on China), the need for an extensive charging network, and preparation for the grid to withstand mass charging.

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The battery supply chain is not coming on stream as needed. The CAPEX requirement is massive and Europe lacks battery-specific skills. Sweden-based Northvolt, once the leading battery venture in Europe, collapsed. China (for now) maintains its grip on mining and refining minerals, as well as on producing electrodes and cells. Their strategy to let overcapacity build up (reaching 600% for cells) and market price sink is making it very difficult for new investments outside China to show economic viability.

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In addition, carmakers and their suppliers have already invested tens of billions of euros to develop EV-ready platforms, battery supply chains, motors, power electronics, and the charging infrastructure. Yet, BEV profitability remains challenging as these vehicles have not reached price parity vs. the ICE equivalent they are supposed to replace, despite fast dropping battery costs.

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In addition, the market needs time to convert as part of the population is reluctant to switch, due to the fear of getting stuck with a depleted battery far from a charger. Buyers must be educated, which will happen overtime

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The Case for Maintaining the EU Mandate

I will not rehash the sustainability justification for maintaining the mandate in its current state as it is obvious for all sound thinking individuals. 

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There are business arguments to be made, and they have a lot to do with China. Chinese OEMs have been forging ahead with the support of their government. This has led to significant economies of scale and their accelerating deployment on global markets. 

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In 2020, Europe experienced a higher BEV penetration than China, boosted by a change in the CO2 target in the EU. In 2024, the BEV market share in China was 2x what it was in Europe. If Europe slips too far behind, it will be in an increasingly challenging position on global markets which are all being progressively electrified.

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One option to address the China challenge could be to close the borders. This is the approach the USA has chosen with 102.5% tariffs on Chinese EVs combined with the relaxation of emission limits domestically. It is akin to hiding under a rock. Tariffs can only be a short-term, targeted solution to enable domestic player to regain competitiveness. I see the (up to) 45% fees the EU collects on Chinese BEVs as such a solution. However, this will work provided European OEMs learn to compete head-to-head with their Chinese counterparts on markets where they are on an equal footing. This will be all the more possible if emission limits on the domestic (EU) market continue to drop.

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Failure to act as such would lead to a drastic loss of competitiveness on global markets, and eventually at home as tariffs can be circumvented with regional production. For reference, BYD is building its second plant in Europe and searching for a site for its third one.

 

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What is the Situation in Other Regions? 

China has not set any (official) target for a full shift to zero emission vehicles. Yet, the market is electrifying at an accelerated pace, battery EVs reaching about 30% of the market in 2024 when the USA stands at 8% — and Japan around 1%. China’s steep electrification growth is the result of coordinated efforts for many years to leapfrog other automotive nations with next generation powertrains. Part of the strategy consisted in dominating the battery supply chain.

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As a result, over 12 million plug-in vehicles were produced in China in 2024, enabling high cost competitiveness vs. other regions, therefore offering significant export potential — see my March 2025 article “Chinese Auto Takeover: Tech, Growth, and Global Expansion” for more insights.

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In the USA, the federal approach has consisted so far in boosting the corporate average fuel economy (CAFE) requirement, forcing a path towards zero emission without setting a target to reach 100% clean vehicles. The new administration is now doing everything it can to slow down the deployment of EVs and the associated battery supply chain.

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In 2022, California enacted a zero emission mandate, targeting all new light vehicles to be either BEV or PHEV by 2035. However, the federal congress and the new administration, with its dogmatic dislike of clean vehicles, just rescinded this mandate — although this is being challenged in court. The BEV+PHEV market share stands at 23% YTD (incl. 19% BEV) vs. a target of 35% in 2026, leaving a significant gap.

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The combination of high tariffs and low domestic emissions requirement will very likely lead to a significant loss of competitiveness on global markets for U.S.-based OEMs. 

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One thing is certain: a clear and stable framework is needed for industry stakeholders to establish robust strategies and invest with the clearest possible profitability criteria. Uncertainty typically results in immobilism which is possibly the worst thing that can happen. At the end of the day, we have no choice but to go 100% zero emission.