[SMM Analysis] EU Carbon Emission Policy Postponed: Balancing Industrial Dilemmas and Global Competition

On March 3, 2025, the European Commission announced a postponement of the automotive carbon emission assessment to 2027, drawing global attention. Behind this decision lies the multifaceted challenges faced by the European automotive industry in its electrification transition: declining profitability of local automakers, intensified pressure from supply chain restructuring, and the strong penetration of Chinese new energy brands. According to data from the European Environment Agency, the penetration rate of EVs in the EU was only 15.8% in 2024, 4.2 percentage points below the original target, while Chinese brands' market share in the European NEV market had climbed to 18%, a 12-fold increase compared to 2020.

The 2024 report by the European Automobile Manufacturers' Association (ACEA) highlighted that the average production cost of EV models from top-tier enterprises such as Volkswagen and Stellantis was 35% higher than that of internal combustion engine vehicles, leading to widespread losses in their EV businesses. For instance, Volkswagen Group's 2024 financial report revealed a loss of approximately 2,300 euros for each ID. series EV sold, while the per-unit profit for internal combustion engine vehicles during the same period remained at 1,800 euros. The policy delay provided these companies with a critical buffer period, prompting Stellantis to announce the postponement of the closure plans for two internal combustion engine vehicle plants, preserving 12,000 jobs.

According to data from the China Association of Automobile Manufacturers (CAAM), China's NEV exports to Europe reached 480,000 units in 2024, a YoY surge of 67%. CATL and BYD had captured 32% and 15% of the European power battery market, respectively, compelling the EU to adjust its policies while initiating the Critical Raw Materials Act, which requires the self-sufficiency rate of domestic battery raw materials to increase to 40% by 2030.

Thierry Breton, the EU Internal Market Commissioner, admitted: "The policy adjustment is not about abandoning the goal but about avoiding the loss of industrial leadership during the transition." A comparison by the International Energy Agency (IEA) showed that European automakers' investment intensity in the pure electric route (R&D as a percentage of revenue at 4.1%) was lower than that of Chinese automakers (5.8%), but their patent reserves in plug-in hybrid technology were 23% ahead of China. This divergence in technological paths led companies like BMW and Mercedes-Benz to increase their hybrid car model offerings, with hybrid vehicle sales accounting for 28% of the European market in 2024, objectively delaying the pace of pure electric transition.

Geopolitical competition pressure is particularly evident on the supply chain side. According to trade data from Eurostat, the value of EV components imported from China in 2024 reached 21.4 billion euros, accounting for 39% of the total imports in the related category. A model prediction by the Belgian Institute for Transport Research suggested that if the current tariff policies remain unchanged, Chinese brand EVs would maintain a price advantage of 15%-20% in the European market, with their market share potentially exceeding 25% by 2027.

The EU's policy toolbox is making multi-pronged efforts: on one hand, providing 25 billion euros in subsidies through the Net-Zero Industry Act (NZIA) to support the construction of domestic battery plants; on the other hand, strengthening anti-subsidy investigations, with temporary tariffs on Chinese EVs raised to 22% in 2024. However, the German Institute for Economic Research (DIW) warned that such protectionist measures could lead to an 8% increase in European EV prices, further suppressing consumer demand.

The risks of industrial restructuring are gradually emerging. Consulting firm PwC predicted that from 2025 to 2027, approximately 30 mergers and acquisitions of parts suppliers might occur in the European automotive industry, primarily involving traditional powertrain suppliers. Meanwhile, Chinese companies are accelerating their pace of building factories in Europe, with Chery and Great Wall's plants in Spain and Hungary expected to commence production in 2026, with a combined annual capacity of 500,000 units.

The EU's postponement of its carbon emission policy is essentially a reactive measure to global industrial changes. While Hildegard Müller, President of the German Association of the Automotive Industry (VDA), emphasized the "need for time to rebuild supply chains," Chinese automakers had already established 47 R&D centers in Europe, a threefold increase compared to 2020. This competition for dominance in electrification not only tests Europe's ability to balance industrial protection and technological openness but also reflects the deeper imbalances in the global automotive order.

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