By Craig Mellow
While Donald Trump's U.S. slams the brakes on the electric-vehicle transition, the European Union is keeping its foot to the floor, probably.
An EU statute passed in 2022 will ban the sale of new gasoline-powered internal-combustion passenger cars by 2035.
EVs' current share of the market is around 15%, says Guillaume Dejean, the industry analyst at Allianz Trade. Closing that gap over the next decade represents enormous risk or opportunity for an automotive sector that accounts for 7% of EU gross domestic product.
Captains of the industry see some of both. Their booths at the recent Munich Auto Show showed off new EV models from Volkswagen's midmarket ID series to Bayerische Motoren Werke's muscular iX3, aiming to outshine Chinese competitors. They decamped from there to a Sept. 12 Brussels sit-down with EU President Ursula von der Leyen, where they protested vehemently over the 2035 deadline. Eurocrats were forcing manufacturers onto "a crash course straight into a wall," Mercedes-Benz CEO Ola Kallenius told German newspaper Handelsblatt.
"We're getting kind of schizophrenic messaging from the auto makers," says Germany-based industry analyst Matthias Schmidt.
The companies' objections are easy to understand. Like their U.S. peers, they make much fatter profits, for now, on good old internal combustion vehicles. The term of art for EV sales is "margin dilutive," Schmidt notes.
Brussels still won't blink on phasing out the gas guzzlers, even with Friedrich Merz's German government now pitching in on the industry's side, thinks Michael Field, European equity strategist at Morningstar. "All the other countries that don't manufacture autos are in favor of the deadline," he says.
The EU is sweetening the pill substantially with tariffs on Chinese EVs that average 30%, by Field's calculation. That has kept the Chinese share of budding battery electric vehicle sales in the bloc to around 10%.
"The tariffs have bought the European manufacturers some time," says Eoin Drea, senior researcher at the Wilfried Martens Centre for European Studies.
U.S.-based Tesla, though still leading the European market, has sustained a 40% drop in sales, presumably due to founder Elon Musk's political side hustles.
Bought time could be good enough to drive a rebound in European auto stocks that have been rocked by cratering sales in China, soaring power costs at home, and new U.S. tariffs.
The iShares Stoxx Europe 600 Automobiles & Parts exchange-traded fund has fallen nearly 30% from a peak 18 months ago. "European auto makers are gaining momentum," Allianz's Dejean says. "They will continue to dominate their home EV market."
Much maligned Volkswagen could drive a "tipping point" starting next year as it rolls out new models driven by cheaper lithium iron phosphate batteries to challenge the Chinese on cost, Schmidt says. BMW and Mercedes maintain a strong grip on the premium end of the market. "Brand DNA will be a positive story," Schmidt predicts.
For Morningstar's Field, the whole industry looks cheap enough for a Buy rating. European auto makers are reaching a peak in their capital investments to shift to EVs, which should improve cash flow going forward, he adds. " Stellantis' stock jumped 10% [on Sept. 11] just because the CEO shared some thoughts on what he might do," he notes.
EU residents bought nearly 11 million cars last year. The epic transformation of this market to all-electric looked recently like it might kill the continent's iconic industry. Now it has a shot at rebirth, too.
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September 18, 2025 12:00 ET (16:00 GMT)
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