Invest in electric: Why Germany’s combustion engine win risks EU industrial loss

Problem

Germany, Italy and six other member states have convinced the European Union to soften its plan to ban the sale of cars with combustion engines by 2035. The rollback means that a car registered in 2036 will likely still be on the road in 2050, which is the EU’s climate-neutrality target year.

Brussels’s weakening of the 2035 phase-out locks in emissions, prolongs dependence on imported fuels and diverts capital away from the technologies driving European competitiveness. Meanwhile, Chinese manufacturers are rapidly expanding their footprint in Europe; the Chinese electric vehicle (EV) market share is expected to double to around 15% in 2025.

Now Berlin is doubling down on preserving internal combustion engines, even as German customer trends show where the future lies: battery-electric vehicle (BEV) registrations rose by nearly 50% in October 2025 year-on-year. This makes EVs one of the few growth segments in an otherwise stagnating market.

As China bets on batteries, scale and simplified architectures, Europe risks betting on nostalgia. But it instead needs to become a leader in technologies bought by global consumers.

Solution

Should the changes come into force (they first require approval by the College of Commissioners, and European Council and European Parliament ratification), the EU and its member states need compensating measures to raise EV ambition.

EU policymakers should:

• Lock in a hard EV ramp‑up despite a softer fleet target. The EU needs to set binding interim targets for EV shares in new registrations (for example, for 2030 and 2035), with support for companies that exceed them—or penalties for companies that miss. Without this, a 90% fleet target could become an invitation to continue selling combustion cars well into the 2030s.
• Use industrial policy to restructure, not preserve the status quo. The EU needs to direct support (tax breaks, state aid, depreciation rules) towards investment in EVs, batteries and charging infrastructure, rather than generic “clean” combustion engines. This public money should help accelerate the shift already underway in corporate and fleet markets.​
• Reframe the political narrative. With the ban likely diluted, the EU needs to communicate that this painful—from a cultural and consumer standpoint—transition is not a reason to cling to a shrinking market. Without strong domestic EV capabilities, Europeans will lose pricing power and become passive buyers in a Chinese‑dominated market.​

Context

European People’s Party leader Manfred Weber has announced that the EU will not proceed with the planned full 2035 combustion ban. The European Commission has instead proposed shifting from a 100% CO2 reduction target for new car fleets to a 90% reduction—under this new scheme, up to 10% of new car registrations could have combustion engines powered by synthetic e-fuels.

The change follows German chancellor Friedrich Merz’s call for dual-drive systems and “highly efficient” engines post-2035, amid public opposition to the ban fuelled by job-loss fears. Germany’s minister-president of Bavaria, Markus Söder, argues that even a 10% e-fuel carve-out “is not enough”.

But markets have already moved on. BEV and plug-in hybrid vehicles are the clearest sources of growth in Germany’s otherwise weak new-car market; China continues dominating EV exports despite tariffs. Europe risks ceding ground by clinging to an identity tied to combustion rather than competing in technologies that define the future.