The EU Automotive Action Plan: What’s Changing and What to Expect?

On 5 March 2025, the European Commission introduced an Industrial Action Plan for the European Automotive Sector, aimed at securing the industry’s long-term competitiveness, accelerating the transition to zero-emission vehicles ("ZEVs"), and strengthening supply chains. The plan builds on the Strategic Dialogue on the Future of the European Automotive Industry, launched by President von der Leyen in January 2025, and reflects feedback from industry stakeholders on how to support Europe’s transition to clean, connected, and increasingly automated vehicles. The plan also complements the Clean Industrial Deal (see our article here), which set out the broader framework for industrial decarbonisation and competitiveness.

Current Situation

The EU automotive sector faces a rapidly evolving global market, shaped by technological transformation, climate targets, and intensifying global competition. Three key challenges have driven the Commission to introduce this plan:

• With corporate fleets accounting for the majority of new car sales, their transition to ZEVs is seen as a critical lever for accelerating market-wide electrification and achieving climate targets.
• The EU faces growing competition from China – which dominates EV production and battery supply chains – and potential trade disruptions from US tariffs. The Commission aims to strengthen Europe’s automotive supply chains to ensure long-term industrial resilience.
• To address the automotive sector's impact on climate change, the EU adopted Regulation (EU) 2019/631 (amended through Regulation (EU) 2023/851)), setting specific CO₂ emission targets for manufacturers, with progressively stricter limits over time, and a complete phase-out of new internal combustion engine ("ICE") vehicles by 2035. Automakers have raised concerns about the feasibility of meeting short-term CO₂ reduction requirements under the current framework, arguing that existing annual compliance deadlines create financial and logistical hurdles.

The next sections of this blog outline the Commission’s key strategic measures to address these challenges and what businesses should expect next.

Corporate Fleet Electrification

Corporate fleets represent nearly 60% of new vehicle sales in the EU, making them a critical driver of the ZEV transition. However, corporate fleet electrification has lagged behind private sales, mainly due to cost concerns, infrastructure limitations, and fragmented national incentives.

To accelerate corporate fleet decarbonisation, the Commission will propose a legislative initiative by Q4 2025, following a structured consultation process with stakeholders in Q2 2025.

Main measures will include:

• Fleet Electrification Mandate – A proposal to increase the share of ZEVs in corporate fleets, while ensuring minimal regulatory burden on SMEs.
• Financial Incentives for Social Leasing – Inspired by France’s successful model, the Commission will expand social leasing schemes to support low-income consumers in acquiring new and used ZEVs.
• Harmonisation of Incentives – The Commission will create a toolbox for national financial incentives, ensuring better alignment across Member States.
• Best Practice Recommendations (March 2025) – The EU will issue recommendations for regional and municipal authorities to accelerate fleet electrification.

The Action Plan also urges Member States to adopt tax incentives to encourage ZEV adoption, following successful models in Belgium, Spain, and Czechia.

More Flexibility for CO₂ Emissions Standards

Recognising industry concerns over compliance challenges, the Commission proposes greater flexibility through a targeted amendment of the CO₂ emission performance standards for cars and vans. Manufacturers will be allowed to meet their CO₂ performance standards over a three-year period (2025-2027) instead of annually, reducing the risk of penalties. The existing overall CO₂ reduction objectives will remain unchanged, but manufacturers gain flexibility in achieving them.

Strengthening Battery Supply Chains & EU Industrial Base:

To reduce Europe’s dependence on non-EU battery production, the Action Plan introduces a comprehensive “Battery Booster” package (2025-2026), supported by €1.8 billion in EU funding from the Innovation Fund for EV battery manufacturers, combined with state aid to scale up supply chains.

Key Initiatives will include:

• New Sustainability & Resilience Criteria (2026) – Public procurement rules will prioritise EU-made batteries and components.
• Accelerating Next-Gen Battery R&D – The BATT4EU partnership (Horizon Europe) will invest €1 billion in battery innovation (2025-2027), focusing on energy density, recyclability, and cost efficiency.
• Battery Raw Materials Access Entity – A new EU-backed initiative to pool investments and secure critical materials for battery production.
• Streamlined Permitting for Battery Manufacturing – Faster approval processes for battery refining and recycling facilities, linked to the Critical Raw Materials Act.

Expanding EV Charging Infrastructure & Grid Integration

Recognising the urgent need to scale up charging infrastructure, the EU will launch a European Clean Transport Corridor Initiative in Q3 2025 to develop charging hubs for heavy-duty EVs along major logistics routes. Guidelines for fast-tracking EV charging connections to the power grid will be issued in Q3 2025, and new rules under the European Grids Package will speed up approvals for EV charging infrastructure and energy storage by Q1 2026. The Social Climate Fund will enable Member States to finance EV leasing schemes and infrastructure expansion by 2026, and the harmonised implementation of the Alternative Fuels Infrastructure Regulation (AFIR) will ensure public and private charging stations meet EU-wide standards.

Industrial Competitiveness & Global Market Conditions

With growing concerns over Chinese EV dominance and unfair competition, the Commission is introducing protective measures to support European automakers. These include anti-subsidy investigations into foreign EV imports, a review of foreign investment rules to ensure non-EU acquisitions in the automotive sector do not compromise strategic autonomy, and the launch of the European Connected & Autonomous Vehicle Alliance in 2025. This pan-European initiative will coordinate R&D in AI-powered mobility, software-defined vehicles, and automated driving systems. The Commission will also introduce pre-deployment testing rules for automated driving systems and refine type-approval rules for large-scale autonomous vehicle fleets between 2025 and 2026.

Outlook and Takeaways

The Automotive Action Plan marks a significant step in EU’s broader industrial strategy, complementing the Clean Industrial Deal announced just weeks ago. By targeting key challenges in the automotive sector – ranging from supply chain resilience to emissions compliance – the plan aims to reinforce Europe’s competitive position in the global transition to zero-emission vehicles. However, questions remain over whether these measures go far enough to secure Europe’s leadership in clean mobility, particularly in the face of rising competition from China and the US. The success of the plan will ultimately depend on how effectively its proposals are implemented at both EU and national levels, as well as how industry players adapt to evolving policy and market conditions.

For businesses and stakeholders, understanding these regulatory shifts is critical to navigating emerging compliance requirements, investment opportunities, and supply chain risks.

We will continue to monitor these developments and provide updates as the legislative agenda unfolds.