EU – European Commission Unveils Plan To Boost Europe’s Automotive Industry.

What You Need to Know 

• Key takeaway #1 

The European Commission has unveiled a comprehensive plan to keep the European automotive industry competitive and address challenges such as dependence on fossil fuels and raw materials, high production costs, and the lagging behind of European companies as regards innovation. 

• Key takeaway #2 

The plan sets out measures to maintain a strong European manufacturing base through action in five key areas: (i) innovation and digitalization; (ii) clean mobility; (iii) competitiveness and supply chain resilience; (iv) worker skills and the social dimension; and (v) market access and a global level playing field. 

• Key takeaway #3 

Manufacturers will have more flexibility to meet CO₂ emissions standards in 2025-2027, but there is no mention of revising the target to ban the sale of cars with internal combustion engines by 2035. 

• Key takeaway #4 

In addition to various stimulus measures to support the domestic EU automotive industry, the plan includes “European preference” requirements, emphasizes the need to reduce dependence on imports, provides for the strengthening of rules of origin and trade defense instruments, and proposes the introduction of conditions for inbound foreign investment in the automotive sector to increase its added value for the EU. 

On March 5, 2025, the European Commission presented a comprehensive Action Plan to boost the global competitiveness of the European Union’s automotive industry and support its transition to zero-emission, connected, and automated vehicles. 

The plan, which builds on the Clean Industrial Deal, aims to address competitiveness challenges such as global supply chain risks, dependence on raw materials and batteries, over-dependence on fossil fuels, cost disadvantages, and an increasingly volatile geopolitical environment. The Commission recognizes that decisive action is needed to prevent European companies from falling behind in key strategic technologies such as batteries, software, autonomous driving, etc. 

The plan sets out measures to maintain a strong European manufacturing base through action in five key areas: (i) innovation and digitalization; (ii) clean mobility; (iii) competitiveness and supply chain resilience; (iv) worker skills and the social dimension; and (v) market access and a global level playing field. 

1. Innovation and digitalization 

1. Promote autonomous driving with large-scale cross-border testbeds and related regulatory sandboxes, starting in 2026. 

2. Harmonize rules for automated driving systems testing and deployment across the EU. 

3. Launch the European Connected and Autonomous Vehicle Alliance in 2025, bringing together a critical mass of European automotive stakeholders to develop shared software and hardware building blocks, including AI chips and sector-specific AI models. 

4. Support research and innovation in next-generation battery technology through the BATT4EU partnership, with a dedicated budget for 2025-2027 of around €350 million; an additional €1 billion of joint public-private investment supporting the Alliance and next-generation battery technology will be provided under Horizon Europe partnerships. 

5. Address cybersecurity risks on connected vehicles and develop security standards. 

6. Ensure that the entire automotive ecosystem (including insurers, car rental companies, independent repair shops, etc.) has access to vehicle data. 

7. Assess whether the existing EU competition framework regarding vertical agreements in the automotive aftermarkets (the Motor Vehicle Block Exemption Regulation) is still fit for purpose against a backdrop of digitalization. 
    
    

2. Clean mobility 

1. More flexibility for meeting the CO₂ emissions standards, while maintaining the target: a targeted amendment to the emissions standards for cars and vans would determine that compliance is assessed over the years 2025, 2026 and 2027 (combined), to allow manufacturers to compensate any exceedance of the target in one or two of these years by overachievements in the other year(s). In addition, the Commission will accelerate work on a comprehensive review of the relevant Regulation. However, there is no mention of revisiting the planned ban on internal combustion engines set for 2035, even though the European People’s Party (the largest – center-right – group in the European Parliament) has demanded that this be reviewed. 

2. Boost demand for zero-emission vehicles by promoting social leasing schemes and decarbonization of corporate fleets. 

3. Accelerate the uptake of zero-emission heavy-duty vehicles by extending exemptions from road charges. 

4. Improve battery repairability. 

5. Accelerate the roll-out of charging infrastructure, support smart and bi-directional charging, and ensure price transparency at recharging points. 

6. Support the deployment of alternative fuels supply infrastructure by making available €570 million under the Alternative Fuels Infrastructure Facility (AFIF) in 2025 and 2026. 

7. Review of the Car Labelling Directive in 2026 to improve consumer information. 

8. Better coordination of incentive schemes to encourage the uptake of zero-emission vehicles by consumers. 
    
    

3. Competitiveness and supply chain resilience 

1. Implement a “Battery Booster” package to support battery manufacturing in the EU. In addition to up to €3 billion already pledged, an additional € 1.8 billion will be made available in the next two years for supporting companies manufacturing batteries in the EU. 

2. Combine EU direct support to batteries manufacturers in the EU with State aid from the Member States and simplify State aid rules to ensure sufficient manufacturing capacity of clean technology in Europe, including batteries and their key components. Support would be available to non-EU companies provided they enter partnerships with EU companies that ensure the sharing of skills, know-how and technology, and that bring sufficient added value for the EU. Supply chain resilience requirements will be considered both for EU and Member State funding. 

3. Introduce European content requirements on batteries and components in electric vehicles sold in the EU. 

4. Ensure reliable access for European automotive players to critical raw materials (CRM), inter alia by streamlining permit procedures, supporting joint private sector investments along the CRM value chain and launching a Critical Raw Materials Centre in 2026 to aggregate supply and demand. 

5. Boost circularity in the automotive supply chain and promote European production of components. 
    
    

4. Skills and social dimension 

1. Set up a European Fair Transition Observatory to monitor employment trends in the automotive sector, identifying potential job displacement “hot spots”. 

2. Amend the European Globalization Fund for Displaced Workers (EGF) and European Social Fund Plus (ESF+) Regulations to better support workers affected by transitions. 

3. Provide targeted support through Erasmus+ grants of up to €90 million for skills partnerships with industry. 
    
    

5. Market access and level playing field with non-EU competition 

1. Pursue Free Trade Agreements and other mutually beneficial partnerships to increase market access and sourcing opportunities, particularly for critical inputs. 

2. Implement a “level playing field package”, consisting of three elements: 

1. Engage with industry and Member states on preferential rules of origin in free trade agreements to ensure that they support the long-term competitiveness of the EU automotive sector, and define specific rules of origin in trade defense measures 

2. Use trade defense instruments and the Foreign Subsidies Regulation to protect the EU automotive sector against unfair competition, not only with respect to vehicle imports but also further up the supply chain (including the batteries and parts segments). 

3. Introduce conditions for inbound foreign investment in the automotive industry to increase their added value for the EU. 

3. Simplify regulatory obligations to reduce the burden on industry, among others as part of an evaluation of the type-approval legislation in 2026. 

Significance 

The Action Plan sets out an ambitious legislative and policy agenda for the coming years and is of crucial importance for companies in the automotive industry, as it aims to address key challenges and opportunities in the transition to clean, connected, and automated mobility. Companies involved in manufacturing, supply chain, and technology development may benefit from the proposed measures to enhance competitiveness, innovation, and market access. The focus on regulatory simplification and investment in skills development will also aid businesses in navigating the evolving landscape and maintaining a strong European production base. Overseas companies may however face new hurdles due to the plan’s emphasis on protecting the domestic European industry. 

For further information, please contact:

Karl Stas, Crowell & Moring

kstas@crowell.com