Location risk: EU carmakers demand course correction on combustion engine

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The European automotive industry is at a crossroads that could decide the continent's importance as an industrial location. In an era of intensified global competition, fragile supply chains, and growing protectionism, the European Automobile Manufacturers' Association (ACEA) is sounding the alarm. At a meeting of the Light Commercial Vehicles Committee on Thursday, top representatives of European manufacturers emphasized: The EU Commission's current course presents the industry with existential problems.

At the heart of the criticism is the discrepancy between political ambition and the economic reality on the roads. Ola Källenius, ACEA President and CEO of Mercedes-Benz, warned: Europe is in danger of losing its leading position – both as an attractive destination for investment and as an engine of innovation. If the climate goals are not better synchronized with economic realities and global competitiveness, serious consequences for jobs and the future viability of the sector could ensue.

The industry unanimously commits to decarbonization. However, according to Källenius, the flexibility offers from politicians so far are far from sufficient to successfully shape the transformation in practice.

Between climate goals and penalties

The association views the situation with particular concern regarding 2030. Manufacturers face the challenge of nearly tripling the market share of battery-electric vehicles (BEVs) within the next four years. Failure to do so could result in penalties for companies, further weakening their investment capacity for future technologies. To prevent such an economic drain, the association calls for extending the calculation periods for fleet values from three to five years. Furthermore, additional compensation mechanisms must be recognized that go beyond the focus on purely electric small cars.

According to the manufacturers, the situation is even more precarious for light commercial vehicles. The overall market for vans is shrinking, and the share of electrified models is stagnating at just over ten percent of new registrations. ACEA therefore considers the current targets for van manufacturers to be unattainable. It demands a reduction of CO₂ reduction targets to 35 percent by 2030 and 80 percent by 2035, coupled with significantly more flexible transition periods. Adhering to the 100 percent quota for 2035 is unrealistic. Instead, the threshold should be lowered to 90 percent, with the remaining portion being offset by credits for green steel or sustainable fuels.

Pressure from China

Not all demands are new, but they gain urgency due to current market developments. As early as August, the associations ACEA and CLEPA had called for a course correction in an open letter to EU Commission President Ursula von der Leyen (CDU). They warned that rigid CO₂ targets are no longer tenable in a world of geopolitical upheaval and dependence on China for batteries and raw materials. Since China can produce electric cars more cheaply, the industry sees its global competitiveness threatened. An ideologically driven phase-out of internal combustion engines is no longer realistic under these conditions.

The figures from the beginning of the year demonstrate that the ramp-up of e-mobility has stalled. In January 2026, new registrations in the EU decreased by almost four percent. While the share of purely electric cars increased to just over 19 percent compared to the weak month of the previous year, consumers continue to prefer hybrid models, which account for almost 40 percent of the market. For vans, diesel remains the dominant force with a market share of over 80 percent.

The industry has revised its forecasts for the coming years downwards: While at the end of 2024 it expected a BEV share of 69 percent for 2030, current estimates now only project around 38 percent.

The role of e-fuels and heavy trucks

Nevertheless, the association emphasizes that manufacturers have done their homework. In 2025 alone, over 300 electrified car models were launched, supported by investments in the hundreds of billions. ACEA has already achieved partial political successes: Car manufacturers received more time for adaptation. Strict regulations apply to trucks, which also bother the association: By 2030, their emissions must decrease by 45 percent compared to 2019, and by 2035 by 65 percent.

According to the association, a key lever remains the hard-won compromise for the "E-Fuels only" category. This is intended to enable internal combustion engines to continue operating in the future – then with synthetic fuels.

The industry views planned legislation such as the Industrial Accelerator Act (IAA) with skepticism. While it is intended to strengthen resilience, it could further drive up vehicle prices through additional bureaucracy and shrink the market. To avoid jeopardizing this effort through regulatory hurdles, ACEA calls for real incentives. Without a fundamental reform of the framework conditions, Källenius concludes, the European automotive industry faces a dangerous stall, which will be felt far beyond the factory gates.

(mki)