But the sector is facing a perfect storm. Thanks to widespread subsidisation and genuine innovation, China’s global car exports are exploding, and European exports are being squeezed out of global export markets, starting with China. EU car exports to the United States (US) almost doubled between 2019 and 2024, but President Trump’s 15 per cent tariffs and his rollback of EV subsidies will deal another blow. EU domestic demand, meanwhile, is weak.
Governments will come under massive pressure from unions and the public not to let car companies fail. The risk is an ineffective and costly muddle of regulatory rollbacks, firm-specific bailouts and a patchwork of national subsidies to prop up demand — only for the industry to wither anyway.
The lopsided focus on prolonging the viability of internal combustion engine (ICE) cars exemplifies the EU’s poorly thought-out approach. It involves extending both the 2035 deadline for phasing out new ICE vehicles and the 2027 deadline for expanding the EU’s carbon pricing scheme to road transport.
Future cars will be electric, not because of regulation, but because EVs will soon be substantially cheaper. If Europe’s car industry is to survive, it must pivot faster to producing EVs that are high-quality, affordable and profitable.
Europe’s carmakers face an EV engineering lag, a battery and software gap and patchy charging infrastructure. These are hard to fix quickly. Counteracting weak demand, and offsetting lost export demand, by contrast, are issues Europe can address.
Rather than tampering with regulations, EU policy-makers should ensure that demand from Europe’s huge single market, with 450 million consumers and a vast corporate sector, spurs European production. That primarily means supporting demand through consumer subsidies, with a buy-European clause co-ordinated across member-states.
Most member-states already have support schemes for EVs in place, but they are completely uncoordinated. There is now a unique chance to do better, as the EU overhauls its corporate car fleet regulation and key member-states create new EV subsidies.
To align demand-support schemes across the EU, the Union should:
Europeanise the French eco-bonus. The French model, with its carbon-based scoring system, is the most practical template to adopt across member-states. It effectively steers demand toward European-made EVs and filters out Chinese production, because it limits subsidy to EV models produced in low-emission supply chains. It will need updating, but it is effective, WTO-proof and ready to deploy.
Let big member-states lead. Germany, France, Spain and Italy together account for 70 per cent of EU new car registrations. To support its car sector, Germany has just committed to reintroduce EV subsidies. Equipping them with the eco-bonus would align Germany with France and support a buy-European policy. Italy and Spain, which are reviewing their subsidies next year, could then follow suit. The Commission has already approved the eco-bonus as permissible state aid, making it the ideal model to roll out across the single market, preventing fragmentation and stoking demand for all EU-built EVs.
Cover both households and corporate fleets. Household EV purchases backed by subsidies would cover only 40 per cent of the total European car market. Over 60 per cent of EU new registrations are company cars which already benefit from sizeable subsidies. Support schemes for corporate EVs should also be conditional on European content requirements. Ensuring that buy-European subsidies apply to both markets would also allow Germany to secure demand for premium models, common in corporate car fleets, while France, Spain and Italy gain scale in the smaller cars which are more common in the household market.
Engage export partners. Most EU car exports go to a handful of allied advanced economies similarly worried about Chinese overcapacities. A European eco-bonus could be a springboard to negotiating reciprocal access to EV subsidies with allies and free-trade partners and ensure global demand.
Our proposal has major economic advantages:
First, instead of rearguard fights over regulation, a demand-side push for European EVs would spur the transformation of the sector – essential to remain competitive in adjacent technologies such as autonomous driving, batteries and software.
Second, buy-European clauses would help avoid rapid deindustrialisation, safeguarding employment without ossifying current labour-market structures. The sector will inevitably undergo skill and geographic shifts, but higher demand would support overall employment while allowing necessary restructuring.
Third, because buy-European clauses would be open to producers across the EU, the policy would not require policy-makers to pick ‘winners’. German tax incentives would also help French producers, and vice versa. A harmonised EU framework could avoid subsidy fragmentation, foster competition in the European market, and level the playing field with China, which excludes foreign vehicles from its own subsidy schemes.
A European eco-bonus implies an additional fiscal cost, but many member-states already subsidise household and corporate EV purchases. Better co-ordinated and additional support would deliver a strong bang-for-the-buck: it would build scale in future technologies and shield the car industry from geopolitical shocks more efficiently than a number of disparate national schemes.
