Brussels is shielding its carmakers when it should be helping them change, argues Bruegel, an independent research institute and one of Brussels’ best-known economic think tanks.
The EU’s recent measures, from tariffs on Chinese vehicles to proposals for local-content requirements and a softer 2035 ban on new combustion engines, are setting the industry on the wrong course and could push up the cost of an electric car by more than €2,000, it says.
“This approach is misguided,” the report states, adding that “because of climate and costs, the future is electric. Discussions on slowing the transition to EVs are an unhelpful distraction.”
A pact paid for by consumers
The report describes current policy as “an implicit pact” with the EU protecting producers from foreign competition, and in return producers bringing their supply chains to Europe.
“Consumers and taxpayers will bear the costs of this pact,” it says.
For instance, requiring battery cells to be made in the EU would raise their price from €50 to €85 per kilowatt-hour, adding roughly €2,100 to a typical electric car. A low-carbon steel requirement would add a further €200, while simplified vehicle approval rules proposed by the Commission would save manufacturers just €61 per car.
The burden falls hardest on cheaper models and less wealthy buyers.
The underlying tension, Bruegel argues, is that the cheapest route to electrification runs through global supply chains, while the most resilient runs through domestic ones.
“The automotive package attempts to do both at once, with the costs largely hidden from view,” the authors of the report write.
France offers a preview as its consumer subsidy scheme, which in practice excludes Chinese carmakers, saw sales of ineligible electric models fall 60% relative to eligible ones and may have slowed overall electric car take-up.
Constant policy revisions compound the damage, the report warns, stating that “regulatory unpredictability is itself a competitiveness cost.”
The study also identifies a flaw in the EU’s tariffs on Chinese electric vehicles, imposed in October 2024 at up to 35.3%. They apply to fully electric cars but not plug-in hybrids.
Imports of the former have since flattened while hybrid imports have surged, “undermining the value of these duties as a shield for European production” and favouring more polluting vehicles.
Chinese-built electric vehicles passed 20% of EU electric vehicle sales this year with more than half of them carrying Western brands.
An industry under strain
As Euronews has reported throughout this year, the European car industry has been hit from several directions at once, Germany’s above all.
Volkswagen flagged around €10 billion in one-off charges on Friday, cut its profit margin forecast to 1% at most and was removed from the Euro Stoxx 50 index on Monday.
Stellantis, the Franco-Italian group behind Peugeot and Fiat, was dropped from the same index last year.
To make matters worse, some plants are leaving car-making altogether.
Earlier this month Volkswagen agreed to sell its Osnabrück factory to the state of Lower Saxony and Tel Aviv-based investment firm Aurelius Capital, which plan to work with Rafael, one of the companies behind Israel’s Iron Dome, on air defence components.
Defence group Rheinmetall has also been converting parts of its civilian automotive production to military use.
Bruegel’s figures further show the scale of the retreat.
EU car production has fallen by around 2.6 million units since 2019, or 19%, while Europeans bought 2.2 million fewer new cars last year than in 2019. However, the sector still employs 14 million people across its value chain, 6% of all EU jobs.
Despite the numbers, the think tank insists this is not collapse as the industry remains a large net exporter, recorded historically high profit margins and invests around €3 billion a quarter in battery and electric vehicle plants.
“The sectoral risk is not collapse but erosion of export markets, technological leadership and supplier networks,” it writes, adding that “for this, the EU needs an adjustment strategy rather than a shield against change.”
What Bruegel wants instead
The think tank recommends equalising tariffs between the two vehicle types and pursuing a time-limited deal with Beijing setting export quotas for both, backed by a snapback mechanism if breached.
The EU has reportedly made a first approach to China this month precisely about limiting hybrid exports, and the suggestion has precedent.
Europe capped Japanese car imports through the 1990s, which raised prices for consumers but gave domestic producers breathing space and drew Japanese factories into Europe.
Canada this year opened a quota letting 49,000 Chinese electric vehicles in at a 6.1% duty, rising to 70,000 by 2030, with its 100% surtax still applying beyond that.
Bruegel also does not pretend the approach is costless.
A quota could be legally questionable under World Trade Organization rules, though it sees room for flexibility, and would hand extra profit to Chinese exporters. Any deal, it insists, must be strictly temporary.
Foreign investment should be welcomed as a chance to catch up rather than restricted, it adds, as South Korean companies already own 65% of operating battery cell capacity in Europe, and Chinese firms 55% of what is under construction.
“The goal should not be to prevent competition with the Chinese, but provide European producers time to catch up,” the report concludes.