Everyone from industry to pundits, and even NGOs, have for months lamented a lack of a comprehensive automotive industrial strategy across the EU, to match the continent’s green deal agenda of CO2 targets. This finally landed in early March, dubbed the Automotive Industrial Action Plan. This analysis looks at its most prominent proposals across clean vehicle, supply chain and infrastructure aspects, outlining its strengths and missteps.
Misguided delay of the 2025 car CO2 target
It is habitual to start with positives and end with a few things to improve. But I’d like to turn this logic around in this piece and start with the most glaring misstep in the Automotive Industrial Action Plan.
The battery electric car (EV) sales across the EU indeed stagnated in 2024 – as predicted by many, including Transport and Environment (T&E) – due to the stop and go nature of EU car CO2 regulation, exacerbated by the sudden withdrawal of EV purchase subsidies in Germany. The EU rules stipulate a stricter target every five years, resulting in carmakers accelerating EV sales in and around the target year but prioritising higher profit conventional models in between.
But, as expected, the EV market has turned a corner in early 2025 as in January the -15% CO2 reduction target kicked in. While not pushing EV sales, carmakers were investing in new affordable models, which they started bringing to the market from late 2024. As a result, the EV sales across Europe grew over 23% in the first quarter of 2025. They were up 39% in Germany, 92% in Spain and 73% in Italy, the latter an EV laggard until now.
However, despite this market growth, the Commission nonetheless has given the car industry a 2-year extension on the 2025 target, allowing them to average compliance (and penalties) until the end of 2027. This risks putting this EV market momentum in jeopardy, as carmakers might delay or reduce the affordable EV offer without imminent pressure to sell.
T&E counts at least 17 such affordable models (i.e. priced at less than EUR 25,000) hitting the market between late 2024 and 2026, with at least a dozen of them made in the EU. Rolling out such affordable models is also what the European auto industry needs to boost their competitiveness globally in markets such as Brazil, South Africa and Indonesia, where they have been losing market share to Chinese rivals. Keeping the 2025 target intact would have ensured that the speed in rolling these models is not at risk.
An industrial battery policy of sorts, finally
While the EV market is picking up, a different story is unfolding in Europe’s faltering battery sector. Over 100 GWh of locally planned battery cell capacity has been cancelled since late 2024. T&E estimates at least 60% of the overall project pipeline – mostly European battery start-ups – are at risk of being delayed, or even following Northvolt’s bankruptcy fate.
The causes for this are numerous, including the lack of domestic industrial expertise to scale cell manufacturing at consistently high quality and difficulty securing sufficient capital. Compared to China and the US, there is also a lack of a consistent industrial strategy to support this strategic sector.
The proposed ‘Battery Booster’ in the automotive plan aims to change that. While some measures are more of the same, such as the next tranche of innovation grants under the EU Battery Fund, two new tools stand out.
First is the commitment to look into production aid for battery manufacturing. Directly supporting each kWh of battery cells produced is exactly what the EU has been missing so far. A similar production support via the Inflation Reduction Act credits in the US resulted in hundreds of billions of dollars’ worth of investment over the Atlantic, with the US poised to overtake Europe on batteries by 2030.
To be effective, the design of such production aid matters. For example, a minimum subsidy can be given to all locally made battery cells, with additional top-ups for making key components such as cathodes or anodes locally, or sourcing and recycling local materials.
But so far, no timeline or detail has been given, despite the urgency to support the local battery players. The upcoming state aid reform offers a unique opportunity to roll out such production aid as part of subsidies given by many European governments. Such design would also be a far better use of the EUR 1.8 billion remaining in the EU Battery Fund than current grants.
Second, the automotive plan rightly acknowledges the need to better learn from foreign battery makers that already build factories on EU territory. Currently, over 80% of operating battery gigafactories are run by South Korean players, while by 2030, T&E estimates that over a third of capacity will come from Chinese companies. Given they are decades ahead of Europeans in terms of technology and skills, it is hard to see how European players can catch up on their own.
Acknowledging this, the plan proposes to have a European framework around foreign direct investment, harmonising rules around technology and skills transfer. This is a good start, but the detail is once again missing. To succeed, this must be a binding measure that all EU Member States have to comply with, rather than voluntary guidelines the likes of Hungary can ignore. It should also look beyond pure IP and educational skills, and include conditions around sharing manufacturing expertise and using local material suppliers.
Speeding up the connections
There is no EV mass market without ubiquitous charging infrastructure. But such infrastructure is often delayed due to lengthy and cumbersome rules around permitting and connection. In fact, grids are often named as the barrier to much cleantech scale-up, from electric trucks to renewables and green hydrogen.
The automotive plan presents many ideas to solve the problem when it comes to both electric car and truck charging. Most notably, the Commission plans to issue guidance to all EU Member States on how they can shorten the connection times and prioritise electric vehicle access alongside renewables. It also wants to ensure better long-term planning of grid expansion in line with the EU’s climate targets.
In summary, the automotive plan announced in March 2025 includes a number of strong elements around industrial policy and enabling conditions to make the automotive transition in the EU a success. But it weakens the most important driver of the transition in the short-term – the 2025 car CO2 target that keeps the attention of the car industry firmly on rolling out more affordable electric models.
Looking ahead, whether it lives up to its potential will be decided by how quickly the Commission implements some of its battery and charging promises, starting with the upcoming review of the state aid guidelines. This is the perfect opportunity to roll out battery production aid to support struggling start-ups.
When it comes to car CO2 standards, the short-term flexibility on the 2025 target should be the last leeway given to the car industry. As the Commission readies its review of the entire EV framework, it should keep the 2030 and 2035 targets intact so that the hard work of building local battery supply chains and rolling out chargers across all countries does not run out of steam.
The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.
