EU Eases Stance on 2035 Combustion Engine Ban, Boosting Automakers
Policy shift to a 90% CO2 reduction, not a full ban, offers a lifeline to legacy carmakers and extends the viability of hybrid and synthetic fuel models.
Traditional automakers with significant European operations received a major regulatory reprieve following reports that the European Union is abandoning its plan to completely ban new combustion-engine cars starting in 2035. The policy shift, a significant victory for the auto lobby, removes a looming existential threat for legacy carmakers and recalibrates the continent's ambitious transition to electric vehicles.
The initial plan for a 100% reduction in CO2 emissions from new cars by 2035 is being revised. Instead, the bloc will now mandate a 90% reduction, a move that keeps the door open for the sale of plug-in hybrids and vehicles running on synthetic e-fuels. The move sent a positive signal through the sector, with shares of Stellantis (STLA) and General Motors (GM) both climbing over 1% in Tuesday trading, while the wider market processed the long-term implications.
The reversal follows sustained pressure from industry giants and certain member states concerned about the economic impact and potential job losses associated with a forced, accelerated shift to battery-electric vehicles (BEVs). Stellantis, the parent company of brands like Peugeot, Fiat, and Chrysler with a market capitalization of over $34 billion, has been particularly vocal. The company's chairman had previously warned about the risks of an overly aggressive transition without widespread consumer acceptance and adequate infrastructure.
Manfred Weber, the influential leader of the center-right European People’s Party (EPP) in the European Parliament, confirmed the change in direction. According to comments reported by multiple outlets, Weber stated that the planned "disastrous ban on internal combustion engines" is now off the table. He clarified that the new rules mean the "technology ban on combustion engines is off the table," securing a future for advanced internal combustion and hybrid technologies.
This policy adjustment grants automakers like Stellantis, General Motors, and Ford (F) critical flexibility. It allows them to continue leveraging their highly profitable and popular internal combustion engine (ICE) and hybrid platforms, easing the immense capital expenditure required for a full-scale pivot to EVs. For companies like General Motors, which boasts an over $77 billion market cap and has invested heavily in its Ultium EV platform, the softened EU stance provides a longer runway to manage the transition and balance investments.
The decision reflects growing realism in Brussels about the challenges of the green transition, including consumer affordability, gaps in charging infrastructure, and intense competition from EV-native manufacturers. It also acknowledges the role that advanced hybrids and carbon-neutral e-fuels can play in reducing transport emissions without completely upending a century-old industry.
While the path forward still involves stringent emissions reductions, this amended policy provides legacy automakers with a more pragmatic and achievable roadmap. It extends the life of their current technological portfolios, offering a bridge to a more electrified future rather than a cliff-edge in 2035. The focus now shifts to how these companies will adapt their long-term product strategies to thrive under a 90% reduction mandate, a challenge that still requires significant innovation in powertrain efficiency and alternative fuels.