The move reflects growing fears about industrial competitiveness, employment and Chinese competition, but critics warn that delaying the electric transition could deepen Europe's technological disadvantage.

Europe's automotive industry is approaching another major regulatory turning point.
On 20 October 2026, representatives of three mainstream political groups in the European Parliament reached a preliminary agreement on less demanding carbon dioxide targets for new cars.

This represents a substantial change from the existing EU legislation requiring a 100% reduction in tailpipe emissions from new cars and vans by 2035.

“Under the proposed compromise, manufacturers would need to reduce average emissions from new passenger cars by 87.5% relative to 2021 levels by 2035, with an additional credit of up to 7.5 percentage points linked to qualifying low-carbon steel produced in the European Union.”

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The European Commission had already proposed reducing the requirement to 90% in December 2025.
Importantly, the parliamentary groups' October agreement is not yet law. It must receive further political approval and be negotiated with EU governments.

How the targets are changing
The differences between the various proposals are economically significant.
The original 2035 framework aimed for zero tailpipe emissions across manufacturers' new vehicle fleets.
The Commission's revised proposal would permit a 90% reduction, with compensating measures involving low-carbon steel and qualifying alternative fuels.
The latest parliamentary compromise envisages an 87.5% car-emissions reduction accompanied by additional credits.

For vans, lawmakers propose an 80% reduction by 2035.
For 2030, the proposed passenger-car reduction remains 55%, while the van target would fall to 35%. Manufacturers could also benefit from averaging emissions performance across several years.
Such flexibility could allow internal combustion engines, plug-in hybrids and range-extender vehicles to remain commercially relevant after 2035.

Why Germany and France support flexibility
The automotive sector remains one of Europe's most important industrial employers.
Germany, France, Italy, Spain, Slovakia, Czechia, Hungary and Poland all depend heavily on vehicle manufacturing or component production.
Automakers face several simultaneous pressures: costly electrification, expensive energy, weakening demand in some markets and increasingly competitive Chinese manufacturers.

Germany and France presented their own compromise on 16 October, supporting a 90% reduction target without obligatory compensatory measures.
Volkswagen and Stellantis welcomed the greater flexibility, arguing that it could protect investment, manufacturing competitiveness and employment.
But not everyone agrees.
Environmental organisations contend that relaxing targets risks delaying investment in batteries and electric-vehicle technology precisely when Chinese companies are gaining scale and cost advantages.

The numbers behind Europe's electric transition
According to the European Commission, average carbon dioxide emissions from new passenger cars registered in Europe fell by 28% between 2019 and 2024.
Zero-emission vehicles represented approximately 14.5% of new passenger-car registrations across the EU, Norway and Iceland in 2024.

For vans, the corresponding figure was only 6.4%, helping explain why commercial-vehicle manufacturers have requested additional flexibility.
Passenger cars account for approximately 16% of total EU carbon dioxide emissions, compared with roughly 3% for light commercial vehicles.
Consequently, changes in automotive policy affect both industrial competitiveness and Europe's climate objectives.

China's industrial advantage
The debate also concerns the geographical location of future automotive production.
European manufacturers increasingly compete with Chinese companies that have invested extensively in batteries, electric drivetrains, software and integrated supply chains.
Chinese manufacturers benefit from large domestic production volumes and an extensive battery industry.
A central question is whether regulatory flexibility will provide European companies with additional time to modernise or reduce the pressure to invest in new technologies.

A 2026 industry debate highlighted estimates that unrestricted Chinese imports could enjoy cost advantages of 30–40% in some areas, although the figure depends on vehicle segment and manufacturing assumptions.
Relaxing emissions requirements does not directly solve these underlying cost differences.

A difficult compromise
The EU is also promoting European-made batteries, green steel and other components through industrial-policy initiatives.
The challenge is balancing several competing objectives: protecting existing employment, preserving affordable mobility, building new manufacturing capacity and reducing emissions.

A slower transition could help manufacturers manage short-term costs and protect some conventional-engine suppliers.
But if competitors continue advancing electric technologies more rapidly, Europe could emerge from the transition with less competitive products.

The proposed reform therefore presents a dilemma.
Does Europe need more time to protect its automotive industry, or does delaying technological change risk making its eventual adjustment even more expensive?
The answer will depend on how manufacturers use the additional flexibility — and whether European industrial investment accelerates rather than stalls.