On 5 March 2025, the European Commission ("Commission") presented an industrial action plan to drive innovation, sustainability and competitiveness in the automotive sector ("Plan"). The Plan seeks to offer a comprehensive strategy aimed at maintaining the global competitiveness of the European automotive industry while navigating the transition to clean mobility and digital integration. Simultaneously, it seeks to address challenges such as access to raw materials, uncompetitive trade practices and rising production costs.
It is structured around five key pillars:
- Innovation and digitalization
- Clean mobility
- Competitiveness and supply chain resilience
- Worker skills and the social dimension
- Market access and a global level playing field
Key Takeaways
Greenhouse gas (GHG) emission standards will be amended to allow flexibility in compliance over 2025-2027. The internal combustion engine ban in 2035, on the other hand, has not been revisited.
Autonomous vehicle testing rules are to be harmonized, and regulatory sandboxes will be established. A European Connected and Autonomous Vehicle Alliance will be launched to enable stakeholders to develop shared software and hardware solutions.
The Commission is pursuing new trade agreements to ensure continued access to raw materials. Circular economy regulations will be strengthened to reduce dependence on raw materials.
Trade defense instruments and foreign subsidies regulations are to be used to protect European manufacturers.
EUR 1.8 billion will be made available from the European Innovation Fund to support battery manufacturing.
In More Detail
The Plan builds on the Clean Industrial Deal and a strategic dialogue between EU manufacturers and the Commission. It aims to address competitiveness challenges, such as global supply chain risks, dependence on raw materials, batteries and fossil fuels, cost disadvantages, and an increasingly volatile geopolitical environment. The Commission deems decisive action necessary to prevent European companies from falling behind in key strategic technologies such as batteries, software and autonomous driving. The realization of these objectives will in most cases require the involvement of the other legislative bodies of the European Union and/or the Member States.
The Five Pillars
The Plan sets out measures to maintain a strong European manufacturing base through action in five key areas.
Pillar 1: Innovation and digitalization
The first pillar focuses on promoting autonomous driving and establishing large-scale cross-border test beds and regulatory sandboxes for autonomous vehicles. Such "test beds" and "sandboxes" provide a structured context for new developments and tests and enable innovative technologies, products and approaches to be tested in a real environment under regulatory supervision and with appropriate safeguards. A European Connected and Autonomous Vehicle Alliance shall be launched, bringing together European automotive stakeholders to develop shared software and hardware building blocks, including a software platform for software-defined vehicles (i.e., vehicles which are strongly characterized by their electronic and software) and AI solutions. Next-generation batteries shall be supported with a dedicated budget of EUR 350 million for 2025-2027. The alliance's activities and the next-generation battery technology shall also be supported by joint public and private investment under relevant partnerships of Horizon Europe, which shall make EUR 1 billion available for the automotive sector during that period. Access to vehicle data shall be facilitated through the establishment of a European automotive data platform, and cybersecurity measures shall be developed to address risks associated with connected vehicles. Lastly, the Commission intends to boost the regulatory framework and single market integration for European autonomous driving through harmonized rules for testing automated driving systems on public roads by 2026 and harmonized rules for deployment across EU.
Pillar 2: Clean mobility
As part of the second pillar the Commission has proposed an amendment to the CO2 emission standards for cars and vans to allow flexibility in compliance over 2025-2027. If adopted by the European Parliament and the Council of the European Union, this amendment will enable manufacturers to compensate for GHG emission exceedances in one or two years by overachievements in other years. By doing so, the Commission wants to avoid the duty of being obligated to impose fines in the coming years, which could further diminish the international competitiveness of European manufacturers. Additionally, social leasing schemes and legislative proposals shall be implemented to boost demand for zero-emission vehicles, particularly among lower-income users and corporate fleets. The rollout of charging infrastructure shall be accelerated, focusing on heavy-duty vehicles and smart, bidirectional charging. The Commission wants to work with member states on a European clean transport corridor initiative to fast-track the deployment of heavy-duty vehicle charging hubs along key logistics corridors and intends to make EUR 570 million available under the Alternative Fuels Infrastructure Facility in 2025 and 2026.
Pillar 3: Competitiveness and supply chain resilience
The third pillar introduces a "Battery Booster" package, which shall make EUR 1.8 billion available from the Innovation Fund to support battery manufacturing. The recently adopted Critical Raw Materials Act aims to ensure reliable access to raw materials, and strategic partnerships will be established to support joint investments along the critical raw materials value chain. The transition to a circular economy shall be strengthened through financing support for battery recycling facilities. Public support for the automotive industry shall be made conditional on resilience and sustainability criteria, and European production of key vehicle components shall be promoted.
Pillar 4: Worker skills and the social dimension
The fourth pillar addresses the need for a skilled workforce to navigate the transition. The European Fair Transition Observatory shall be set up to develop data on employment trends and demographic structures, pinpointing future "hot spots" of employment dislocations. Amendments to the European Globalization Fund and European Social Fund Plus regulations shall be proposed to support companies in restructuring processes and to protect employees against the risk of unemployment. Sectoral skills initiatives are to be reinforced, with targeted support through Erasmus+ grants.
Pillar 5: Market access and a global level playing field
The fifth pillar focuses on pursuing free trade agreements and international partnerships to enhance market access and sourcing opportunities. Trade defense instruments and rules of origin shall be used to address unfair practices in the automotive sector, and conditions for inbound foreign investments shall be proposed to increase their added value.
Reception
The Plan was positively received by automotive industry stakeholders as a pragmatic step that recognizes economic and geopolitical realities. In particular, the planned flexibility in achieving emission targets and the regulation of autonomous driving at European level were welcomed. However, some stakeholders criticized that the ban on combustion engines in 2035 was not reconsidered.
Analysis and Impact
The automotive industry contributes EUR 1 trillion to the GDP of the EU and provides employment to 13 million Europeans. The introduction of the Plan highlights the sector's significance to European prosperity. It is undergoing rapid transformation, with a shift towards clean mobility and digital technologies such as AI, software, sensing and communication devices. The success of this transformation is essential for the industry to remain competitive globally. The action plan takes these realities into account and proposes solutions so that European players can take a leading role in the digital age, too.
However, it should be noted that this is only an action plan, the implementation of which requires more specific proposals from the Commission and, in many areas, the approval of the EU Parliament and the Council. It remains to be seen how the plan will be implemented in detail and whether it can actually strengthen the competitiveness of the European automotive industry.