Brussels has proposed abandoning its 2035 deadline for a full transition to pure electric vehicles, granting European legacy automakers more time to sell hybrid models. However, analysts note that despite this significant policy concession, the industry's massive sunk costs in electrification make EVs the inevitable long-term future.
The European Commission unveiled a plan this Tuesday to effectively scrap the 2035 ban on internal combustion engines. Under the new proposal, plug-in hybrids, range-extended EVs with small combustion engines, and even some conventional models would remain legal post-2035. Additionally, Brussels suggested creating a new small EV category and offering extra emission credits for Europe-made models.
This policy shift not only marks a major regulatory adjustment but also diverges from the U.S. path after President Trump withdrew EV support. For premium brands like Mercedes and BMW, it extends the window to sell hybrids before full electrification. Mass-market players like Stellantis and Renault with small models like Fiat 500 and Clio could benefit from new urban EV subsidies.
Despite gaining breathing room, industry experts warn that policy volatility challenges firms that already committed capital under 2023 rules. Automakers and suppliers have poured billions into EV designs and factory expansions. While this adjustment temporarily favors conventional tech, analysts say it doesn't alter the long-term capital logic of electrification.
The policy pivot allows hybrid tech to play a transitional role for another decade. Phil Dunne of Grant Thornton Stax notes it gives European automakers competitive flexibility. Yet consultancies remain cautious about long-term sales impacts. AlixPartners had predicted only 62% pure EV sales by 2035 in Europe, doubting full ban enforcement - a forecast unlikely to change significantly post-announcement.
The slowdown objectively buys time for charging infrastructure development, which even EV advocates admit remains a key adoption barrier. EU pure EV sales grew 25.7% YoY through October, reaching 16.4% market share, but penetration remains minimal in Southern and Eastern Europe.
The U-turn hits aggressive transitioners hard. With the combustion engine ban only becoming law in 2023, many firms face prolonged ROI timelines or strategic mismatches on billions in committed R&D and capacity investments. Ford's $19.5 billion writedown and EV model cancellations announced just before the EU move exemplify the turmoil, driving firms like Ford and Renault to collaborate on small EVs.
UK startup Anaphite's CEO Joe Stevenson predicts this will accelerate automaker partnerships and platform sharing, as his firm develops cost-reducing dry electrode battery tech.
Industry leaders are demanding policy stability. After March's three-year phase-in for 2025 emissions targets, this second adjustment in nine months drew criticism. Ford CEO Jim Farley urged Brussels to "pick a policy and stick with it," stating: "This isn't how to plan long-term capital investments. We need certainty."
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