A new study from US-based consultancy Kearney paints a stark picture of the European automotive industry as the European Commission weighs potential adjustments to the planned 2035 combustion engine phase-out. The report, cited by Der Spiegel, suggests that current CO2 reduction regulations risk pushing European automakers into significant losses, raising serious questions about the sector’s long-term viability and competitiveness.
The core issue lies in the combination of increasingly stringent EU fleet emission standards and the challenges European manufacturers face in the global market. Wulf Stolle, a partner at Kearney and the study’s author, highlights that European firms are struggling to compete with Chinese manufacturers in the electric vehicle market and are hampered by US trade policies under President Donald Trump’s tariffs within the American market. This leaves the European home market as a crucial, yet increasingly precarious, source of revenue.
Kearney’s projections, based on current business figures, estimate a dramatic decline in the profit margins of major European automakers – Volkswagen, BMW, Mercedes-Benz, Stellantis and Renault – from an average of 5.5% to as low as -2.9% by 2030 if the 2035 deadline remains unchanged. Without adjustments, Stolle warns, the EU’s regulations will trigger “significant losses” potentially forcing a “painful process of contraction” across the industry.
The European Commission is currently exploring potential exemptions, including for plug-in hybrids and vehicles equipped with range extenders. However, Stolle believes such temporary concessions would merely prolong the industry’s decline. He emphasizes a fundamental structural shift: electric vehicles represent a fundamentally different product category. The decades of accumulated advantage in internal combustion engine technology and established brand recognition, long held as key strengths of German manufacturers, are rapidly being superseded by expertise in battery technology and software – fields where Chinese firms now hold a clear lead.
The existing “fleet emission standards” which currently allow for an average of 93.6 grams of CO2 per kilometer for new vehicles, are being steadily reduced to zero by 2035, effectively banning the sale of new combustion engine vehicles. These standards are a crucial component of the EU’s “Fit-for-55” package, designed to place the bloc on a pathway to limit climate change to just above two degrees Celsius. A recent ruling by the International Court of Justice underscored that states exceeding the 1.5-degree threshold risk legal action and potential compensation claims, placing even greater pressure on emission reduction targets and intensifying the challenges facing the European automotive sector. The situation raises concerns about potential job losses, industrial decline and the EU’s ability to maintain its position as a global leader in automotive innovation.