European automakers will be given increased breathing room to meet vehicle emissions reduction requirements, according to European Commission President Ursula von der Leyen, with a proposal to give them more time to comply with CO2 targets, enabling companies to avoid significant penalties that are slated to start this year.

The EU adopted a series of clean mobility regulations in 2023, including a requirement for a 100% reduction in CO2 emissions from new cars and vans registered in the EU from 2035, as well as interim emissions reduction targets for new vehicles on the path to the 2035 goal, with penalties for exceeding the emissions targets for each new vehicle registered in a given year.

In comments made following a dialogue with industry leaders, von der Leyen noted “a clear demand for more flexibility on CO2 targets.” The call for more room comes as EV uptake has been slower than forecast, with industry association the European Automobile Manufacturers’​ Association (ACEA) urging EU policymakers over the past several  months to address the upcoming compliance costs, citing for example, a S&P global study in November 2024 that revised the EU battery-electric vehicle (BEV) 2025 market share forecast down to 21% from its prior 27% expectation.

Under the current rules, automakers would face significant fines, with Volkswagen, for example, recently warning analysts that it would likely be required to pay over $1.5 billion in penalties in 2025.

Von der Leyen said that she will propose an amendment to the regulation to give companies three years to meet the required targets, instead of annual compliance, providing “more breathing space for industry and more clarity.” The EU Commission President noted, however, that the targets themselves would not change, giving “predictability and fairness for first movers, those who did their homework successfully.”

In addition to the proposed timeline change, von der Leyen pledged to include “full technology neutrality as a core principle” in the Commission’s work to review its 2035 goals, opening the door for a larger role for approaches such as e-fuels, compared to the current rules which rely heavily on EVs. The President also said that the Commission will “explore direct support for EU battery producers,” and will to introduce EU content requirements for battery cells and components to help protect the EU automotive supply chain while ensuring that EVs don’t become more expensive.

Automotive industry groups welcomed the outcome of the dialogue, with the ACEA noting that the discussion reflected “a clear recognition of the need for a reality check to ensure that this transition can succeed.”

Other sector groups criticized the EU’s announcement, however, warning that the changes may slow the transition to EVs. The BEUC, an umbrella group of consumer organizations called the move “deeply regrettable,” as it will slow the momentum of introducing affordable electric cars on the market.

BEUC Director General Agustín Reyna said:

“This is really the wrong signal to consumers. This is like putting the car in reverse while it’s already at full speed on the motorway. Electric cars are rolling off the production lines in increasing numbers. This will simply disincentivise car makers from investing and providing new, more affordable models.”