[SMM Analysis] EU Delays Carbon Emission Standards to 2027 Amidst Industry Turbulence

On March 3, 2025, the European Commission announced a delay in implementing automotive carbon emission regulations until 2027, sparking global attention. This decision reflects Europe’s multifaceted challenges in its electrification transition: declining profitability among domestic automakers, mounting supply chain restructuring pressures, and the rapid expansion of Chinese NEV brands in the region. According to the European Environment Agency, the EU’s EV adoption rate reached only 15.8% in 2024, 4.2 percentage points below its original target. Meanwhile, Chinese brands now command 18% of Europe’s NEV market—a twelvefold increase since 2020.

The European Automobile Manufacturers’ Association (ACEA) reported in 2024 that leading automakers like Volkswagen and Stellantis face 35% higher production costs for EVs compared to ICE vehicles, resulting in widespread losses. Volkswagen’s 2024 financial disclosures revealed a per-unit loss of €2,300 for its ID-series EVs, while ICE models maintained a profit margin of €1,800 per vehicle. The policy postponement grants automakers critical breathing room, with Stellantis delaying the closure of two ICE plants affecting 12,000 jobs.

China’s NEV exports to Europe surged 67% year-on-year to 480,000 units in 2024, as per the China Association of Automobile Manufacturers (CAAM). CATL and BYD now hold 32% and 15% shares, respectively, in Europe’s power battery market, prompting the EU to activate its Critical Raw Materials Act, mandating 40% domestic sourcing for battery materials by 2030.

EU Internal Market Commissioner Thierry Breton stated, “This adjustment is not an abandonment of climate goals but a strategic pause to preserve industrial sovereignty.” An International Energy Agency (IEA) analysis reveals divergent R&D strategies: European automakers allocate 4.1% of revenue to BEV development versus Chinese peers’ 5.8%, though Europe retains a 23% lead in plug-in hybrid (PHEV) patents. This technological bifurcation has driven BMW and Mercedes-Benz to prioritize PHEVs, with hybrids accounting for 28% of 2024 European sales—slowing pure-EV adoption.

Geopolitical tensions permeate supply chains. Eurostat data shows €21.4 billion (39% of total imports) in EV components sourced from China in 2024. Belgium’s Transport Research Institute forecasts Chinese brands maintaining 15-20% price advantages under current tariffs, potentially capturing 25% market share by 2027.

The EU is deploying a dual strategy: allocating €25 billion via the Net-Zero Industry Act for local battery production while imposing 22% provisional tariffs on Chinese EVs in 2024. However, the German Institute for Economic Research (DIW) warns such protectionism could inflate EV prices by 8%, further dampening demand.

Meanwhile, Chinese automakers are accelerating localization. Chery and Great Wall’s Spanish and Hungarian plants, set for 2026 operation, will add 500,000 units of annual capacity. As Hildegard Müller, President of Germany’s VDA, emphasizes “the need to rebuild supply chains,” Chinese firms have established nearly 50 R&D centers across Europe. This regulatory delay—a balancing act between industrial preservation and global competition—underscores the deepening contradictions in the automotive industry’s tectonic realignment.

SMM New Energy Industry Research Department

Cong Wang 021-51666838

Xiaodan Yu 021-20707870

Rui Ma 021-51595780

Disheng Feng 021-51666714

Yujun Liu 021-20707895

Yanlin Lü 021-20707875

Zhicheng Zhou 021-51666711

Haohan Zhang 021-51666752

Zihan Wang 021-51666914

Xiaoxuan Ren 021-20707866

Jie Wang 021-51595902

Yang Xu 021-51666760

Boling Chen 021-51666836