On Wednesday 5th March, the European Commission presented the Industrial Action Plan for the automotive sector. This plan follows the announcement by President Ursula von der Leyen, outlining more flexibility for meeting commitments to avoid penalties for manufacturers falling behind the 2025 targets set by the regulation on standards.
The European proposal, if adopted, states that “compliance is assessed over the years of 2025, 2026 and 2027 combined to allow car manufacturers to compensate an exceedance of the target in one or two of these years by overachievements in the other year(s).” The proposal does not change the emission reduction targets.
This decision could influence manufacturers’ market strategies throughout the year, reducing the sales of low and zero-emission electric vehicles, with potentially negative implications for the overall emissions of the EU transport sector. This could happen despite the positive start to 2025 sales of these cars, as highlighted by the EU automotive market and emissions Observatory, promoted by ECCO in collaboration with ICCT and IDDRI-IMT.
For the month of January 2025, the Observatory reports a 16% market share for BEV vehicles (two points above the 2024 average), and a general increase in electrified cars (59% share compared to the 2024 average of 53%). In light of this data, manufacturers are, on average, 10 gCO2/km away from the 2025 target, compared to the 14 gCO2/km calculated for the 2024 sales mix.
Initial market data for 2025 suggests that the flexibility proposed by Brussels may not be necessary if manufacturers maintain this trajectory throughout the year. Moreover, the Industrial Action Plan for the European automotive sector has been developed with inputs from industry stakeholders and reaffirms the path towards the full electrification of mobility.
The proposals within the Plan focus on the development of software-defined vehicles integrated with artificial intelligence models for autonomous driving: a technology that is only possible in an electric vehicle architecture. Support for research, development and the competitiveness of supply chains mainly concerns batteries, which are a crucial component for supporting this paradigm shift. Demand-side policies are all aimed at electrification, including through the strengthening and development of smart and bidirectional charging infrastructure.
The Plan provides a comprehensive framework of policies, measures, and funding and incentive opportunities to mobilise private investments for the development of industrial strategies in the sector, aligned with the goal of full vehicle electrification by 2035: a path that Italy must urgently follow to relaunch its industry.
Key pillars of the EU Industrial Action Plan for the automotive sector
Electric, connected and intelligent vehicles
The first pillar of the Plan concerns innovation and digitalisation towards software-defined vehicles, with support for the development of artificial intelligence models to enhance autonomous driving performance, ensure the operability of vehicles connected to transport and charging infrastructures, and manage battery systems. Only electric vehicles with high-capacity batteries can ensure this development. In this regard, the Plan outlines the development of next-generation batteries, which are essential for guaranteeing the autonomy and efficiency required by these vehicles.
Stimulating demand
On the demand side, the Plan supports the need for Member States to adopt social leasing schemes in national plans associated with the Social Climate Fund, financed by ETS 2 funds, with the aim of encouraging the purchase of zero-emission vehicles for vulnerable population groups. A legislative proposal for the electrification of corporate fleets has also been confirmed, preceded by an action plan to accelerate this process. The Plan proposes collaborating with Member States to assess the adoption of uniform criteria for schemes that incentivise private demand, supported by European funds.
To boost demand, the Plan reiterates the importance of accelerating the development of charging infrastructure, supporting Member States in implementing existing regulations and introducing new measures within the Transport Investment Plan to stimulate private investment. Measures are also planned to facilitate the connection of electric charging infrastructure to the grid and to stimulate the development of smart, bidirectional charging systems, including through the revision of distortionary fiscal policies to support the development of demand-response models for grid flexibility. Additional actions to indirectly support demand will focus on building consumer confidence in adopting electric vehicles and improving the perception of their economic benefits, including through more transparent public charging costs.
Supply chain competitiveness
To strengthen the competitiveness of supply chains, the Plan includes a package of measures to activate European value chains for battery cells and components (Battery Booster package), with local content quotas. To this end, significant financial resources will be allocated to support investments in the installation and expansion of manufacturing lines, as well as direct support for production, potentially following the American IRA model, within a renewed framework for state aid. Support may also be granted to non-European entities, provided that they collaborate with European companies to promote the exchange of expertise, technologies and know-how. The Plan also includes further actions in favour of strategic projects for the supply and refining of materials, as well as their circularity through the recycling of components.
Labour and skills
The social dimension of the Plan focuses mainly on labour skills, and it reaffirms and strengthens existing commitments through initiatives like the European Social Fund Plus (ESF+) and the European Globalisation Adjustment Fund (EGF) for affected workers, in addition to specific programmes like the Pact for Skills and the Automotive Skills Alliance. To further support these initiatives, a European Just Transition Observatory will be established to collect data on employment trends in the automotive sector at the European, sectoral and regional levels, identifying the areas at risk of unemployment and providing guidance for targeted interventions. To better utilise ESF+ funds, the Commission will actively collaborate with Member States and social partners on the professional reskilling and redeployment of workers, even in sectors outside the automotive industry. Additionally, the mid-term review of the Cohesion Policy (ESF+) will encourage countries to allocate more resources to the automotive sector.
Trade and competition
In terms of trade policies, the Plan aims to strengthen access to global markets and ensure fair competition conditions for the European automotive industry by improving trade agreements and protecting the sector from unfair practices. Rules of origin in the agreements will be optimised to promote competitiveness, and trade defence measures will be introduced against unfair imports, such as tariffs on Chinese electric vehicles. Moreover, the Commission will set conditions for foreign investment, encouraging the transfer of technologies and strengthening the European battery supply chain.
Synergies with the European industrial strategy
The Industrial Action Plan for the European automotive sector should be viewed in the context of the Clean Industrial Deal, which includes several initiatives to support the relaunch of the European electric mobility industry. These include identifying public and private investment sources to support clean mobility and its value chains, and the Critical Raw Materials Centre, which will aggregate demand and supply of necessary critical materials starting in 2026.
Photo by CHUTTERSNAP
