Germany and France Soften 2035 Gas Car Ban, Boosting Auto Stocks
Translated & summarized from Bizportal by baba
Germany and France have agreed to soften the EU's 2035 ban on new gasoline and diesel cars, allowing vehicles running on renewable fuels to be considered zero-emission and extending incentives to all electric car sizes. This compromise, which eliminates the need for manufacturers to offset emissions, still requires approval from other EU members and the European Parliament. The deal aims to ease financial pressure on automakers facing competition and weak demand, though environmental groups criticize it for potentially slowing EV adoption. Auto stocks rose following the announcement, but manufacturers continue to plan under existing stricter regulations.
The story in 5 lines · by baba
- Germany and France agreed to soften the EU's 2035 ban on new gasoline and diesel cars.
- The compromise allows cars using renewable fuels to be considered zero-emission.
- Incentives for electric vehicles will now apply to all sizes, not just small, affordable ones.
- Environmental groups criticize the deal for potentially slowing electric vehicle adoption.
- The agreement led to a significant rise in European auto manufacturer stock prices.
Germany and France have reached a joint position that softens a key European climate law, with Chancellor Friedrich Merz stating the 2035 ban on new gasoline and diesel car sales is now a thing of the past. While the agreement between Berlin and Paris still requires approval from other EU member states and the European Parliament, the alignment of the continent's two largest economies makes it unlikely Brussels will oppose it. The original law mandated a 100% reduction in CO2 emissions for new vehicle fleets by 2035, effectively allowing only electric cars. The European Commission had previously proposed a 90% reduction by late 2025, conditional on manufacturers offsetting the remaining 10% through measures like low-carbon steel or renewable fuels. The new German-French proposal eliminates this offsetting requirement entirely.
The joint document also expands the scope for "zero-emission" vehicles, allowing cars running on renewable fuels to be classified as such. Furthermore, incentives originally planned for small, affordable electric vehicles will now apply to all electric car sizes. These adjustments are expected to make it significantly easier for manufacturers to meet targets and reduce the risk of heavy fines for an industry already facing challenges. In return for agreeing to the emissions targets, France secured German support for stricter "Made in Europe" rules, linking subsidies, tax benefits, and public tenders to production within the EU. This definition, narrower than the Commission's earlier proposal, could include the UK and Norway under certain conditions, a move welcomed by London due to the integrated nature of the British automotive supply chain.
Automakers face substantial penalties under current EU regulations: 95 euros per gram of excess CO2 per kilometer, multiplied by the number of new cars sold. A single gram of excess emissions for a manufacturer selling one million cars amounts to a 95 million euro fine. For 2025-2027, the EU has already eased this by allowing averages to be calculated over three years. The agreement's announcement led to a surge in auto stocks, with BMW, Mercedes, Volkswagen, Renault, and Stellantis all seeing significant gains on Friday, though their stock values remain considerably lower year-to-date. European manufacturers are grappling with intense competition from cheaper Chinese EVs and weak consumer demand, despite a modest increase in new car registrations and a rise in the market share of fully electric cars to 21.7% in the EU.
Environmental organizations have strongly criticized the agreement, arguing it will slow the adoption of electric vehicles and reduce incentives for investment in battery technology and supply chains in Europe, ultimately harming the industry's competitiveness against China. Conversely, Lower Saxony, a major Volkswagen shareholder, praised the move as a protection of jobs. The European Automobile Manufacturers' Association called the position a step in the right direction but noted the need for further flexibility. For Israel, which imports all its vehicles, the European manufacturers' product development will significantly influence future model availability and pricing.