The European automotive industry stands at a crossroads, struggling with mounting pressure from global competition, EU climate targets, and rapid technological shifts. In response, European Commission President Ursula von der Leyen launched the Strategic Dialogue on the Future of the European Automotive Industry on January 30, 2025. This initiative gathered key stakeholders to discuss the sector’s most pressing challenges and laid the foundation for the Automotive Industrial Action Plan, unveiled on Wednesday, March 5, by Commissioner Apostolos Tzitzikostas.
Despite years of progress, Europe’s automotive sector faces declining global competitiveness, supply chain vulnerabilities, and a sluggish transition to zero-emission vehicles. A major hurdle remains the lack of adequate charging and refuelling infrastructure, especially for heavy-duty vehicles. Currently, 60% of all charging stations in the EU are concentrated in just three member states, leaving large parts of the continent under-equipped.
Meanwhile, stringent CO₂ emission regulations are putting automakers under pressure, with failure to meet targets leading to potential fines, affecting their financial stability. Volkswagen, for instance, has announced plans to shut down at least three factories in Germany, leading to tens of thousands of job losses. The move is part of a drastic restructuring aimed at cutting costs and responding to growing competition from Asia.
The Action Plan
Recognising these challenges, the European Commission published the Automotive Industrial Action Plan, designed to ensure that Europe’s automotive sector remains competitive, innovative, and sustainable. The plan is built on four pillars: innovation, clean mobility, supply chain resilience, and workforce skills.
To help the industry lead in the transition towards AI-powered, connected and automated vehicles, the action plan introduced a new dedicated European Connected and Autonomous Vehicle Alliance to develop shared software, chips, and digital hardware. Large-scale testbeds and regulatory sandboxes will enable real-world testing, while the Commission will refine the testing and deployment rules. Backed by €1 billion in public-private investments from Horizon Europe, the Commission aims to scale up innovation and bring autonomous vehicles to European roads faster.
In response to industry demands for greater flexibility on CO₂ emissions targets for new passenger cars, Commissioner Tzitzikostas announced plans to propose an amendment to the CO₂ Standards Regulation this month. The amendment would shift compliance assessments from an annual basis to a three-year period (2025-2027), allowing automakers to balance shortfalls in one or two years with excess achievements in others. Additionally, Commissioner Tzitzikostas confirmed that the planned revision of CO₂ emissions legislation will be moved up to Q3-Q4 of 2025 instead of 2026. However, he firmly emphasised, in a press conference held before the publication of the action plan, that the 2035 target remains unchanged—all new cars sold in the EU must still be zero-emission vehicles by 2035.
To speed up the transition to electric vehicles (EVs), the Commission also unveiled its long-awaited Strategy for Greening corporate fleets, which account for 60% of new car registrations in the EU. The communication outlines best practices for now but also promises a legislative proposal by the end of 2025 and a launch of high-level dialogue with relevant stakeholders, starting as of Q2 2025.
Additionally, the action plan aims to strengthen battery production in the EU to reduce reliance on cheaper imports while keeping EV costs competitive. To support EU-based battery manufacturers, the Commission will provide financing, direct production aid, and stricter European content requirements for battery components. To address workforce challenges, the EU will expand funding for reskilling and job transitions in the automotive sector, making support faster and more accessible. To counter unfair competition, the Commission plans to deploy trade defence measures, improve market access negotiations, and ensure foreign investments align with Europe’s long-term competitiveness goals. At the same time, the Commission aims to cut regulatory red tape to ease burdens on automakers, as part of a broader effort to simplify the EU’s legislative framework.
Mixed reaction from the industry
The Industrial Action Plan for the European Automotive Sector and the Strategic Dialogue leading to the action plan have generated mixed reactions from stakeholders across the industry. Many acknowledge that the plan provides flexibility for manufacturers struggling to meet CO₂ targets, particularly in light of economic uncertainties and production challenges. The decision to allow carmakers to offset shortfalls in 2025 by overachieving in later years has been welcomed by some as helpful and as a pragmatic approach to avoid penalties, while others argue that it does not go far enough to ease the pressure. Additionally, some stakeholders have raised concerns that this amendment could lead to a slowdown in electric vehicle adoption, delaying the availability of more affordable models and reducing Europe’s ability to compete with China in the EV sector.
The absence of renewable fuels and other low-carbon technologies in the action plan has also been criticised, and there is growing pressure on the Commission to introduce policies that incorporate a mix of technologies—including hydrogen, plug-in hybrids, and renewable fuels—rather than focusing solely on electrification.
On the other hand, the initiative to accelerate the electrification of corporate fleets has been largely seen as a positive step to increase demand for European EVs and enhance affordability, particularly by ensuring a steady flow of vehicles into the second-hand market.
Beyond emissions targets and electrification, there is also a clear call for concrete commitments to battery production, infrastructure development, and innovation. While the Commission acknowledges the importance of strengthening Europe’s battery supply chain, many believe its measures lack urgency, potentially leaving European manufacturers at a competitive disadvantage. The absence of bold policy change has also drawn disappointment, with some calling the plan “too little, too late.”
As the sector faces mounting global competition and economic challenges, the real test will be whether the Commission can turn this plan into action that ensures Europe remains a leader in the automotive industry.