Berlin and Paris spent months negotiating over the future of Europe’s auto industry.
Germany wanted to keep selling new combustion-engine cars beyond 2035. In return, France wanted strict “Made in Europe” rules: public money spent on electric vehicle (EV) purchase incentives, subsidies and government contracts should benefit cars genuinely made in Europe, not simply assembled here.
One concession in exchange for the other. French president Emmanuel Macron and German chancellor Friedrich Merz have now sealed the deal.
Both can claim victory at home, and both say they want the same thing: to strengthen Europe’s auto industry against Chinese competition.
But the trade-off undermines that very goal. It rightly pushes for more European production, but pays for it with less ambition for electric vehicles.
For Europe’s automakers to compete, two things need to happen: More of the value generated by car manufacturing must stay in Europe, and the transition to electric vehicles must remain on track. Trading one for the other weakens both.
Value creation is already moving elsewhere
On one point, France is right: a growing EV market alone won’t protect European jobs. Many of the most important components in electric cars already come from China, especially batteries.
Meanwhile, Chinese automakers are building factories in Hungary and Spain, securing direct access to the European market.
The risk is clear: cars assembled in Europe from imported components qualify as European products, benefit from purchase incentives and win public contracts.
Final assembly stays in Europe, but much of the economic value is created elsewhere. European auto suppliers have already cut more than 100,000 jobs in two years, and the European Commission warns that up to 600,000 more could disappear over the next five to 10 years.
That’s where the proposed Industrial Accelerator Act comes in. It would link public spending on subsidies, purchase incentives and government procurement to production in Europe.
This isn’t just about shutting out foreign competition. It steers demand to where it strengthens Europe’s industrial base.
To work, the rules must target the components that will shape the industry’s future: battery cells, software, electric drivetrains and power electronics.
“Made in Europe” can’t simply mean attaching the wheels here.
That doesn’t mean every nut and bolt must come from the EU. The auto industry relies on global supply chains and trusted trading partners.
But a law riddled with exemptions would be little better than no law at all: It would create more red tape without bringing a single new factory to Europe.
Factories need customers
Even the best industrial policy will fail without buyers. A battery factory can only make money if it produces enough batteries. Yet Europe’s battery plants are running well below capacity because they don’t have enough orders. Every battery that goes unproduced drives up the cost of those that are made. Factories, machinery and workers still have to be paid for.
Since 2022, roughly a quarter of announced battery projects in the EU have been canceled or put on hold.
This is why Germany’s push to delay the phaseout of combustion-engine cars is so damaging. Every combustion-engine car sold instead of an EV means one fewer battery that could be made in Europe. The very factories meant to make “Made in Europe” a reality would lose potential customers.
The best way to boost demand for European batteries is to build more small, affordable EVs in Europe. That’s where the biggest sales volumes are. Yet German automakers in particular have been slow to embrace this market, despite significant demand potential in Germany itself. Delaying the combustion-engine phaseout would only give them another reason to hold back.
Slow down, lose out
For European automakers, the stakes go far beyond their home market. Sell fewer EVs at home, and manufacturers will launch fewer new models, produce fewer cars and face higher costs. That will make it harder to compete abroad, too. Giving combustion engines more time won’t close the gap with China. It could make it wider.
Political uncertainty only makes matters worse. Automakers plan new models, factories and supplier contracts years in advance. Every fresh debate over exemptions gives investors and consumers another reason to hesitate.
Companies investing billions in EVs and batteries – and consumers considering buying an electric car – need to know that policymakers won’t change direction tomorrow.
The Franco-German bargain ignores economic reality. The future of the car is electric, and China figured that out long ago.
Beijing is doing everything it can to build an unbeatable lead in EVs, including through unfair practices such as massive government subsidies.
And Europe? It’s haggling over more time for yesterday’s technology. At stake is nothing less than the auto industry – the backbone of Europe’s industrial economy and a major source of jobs.
This deal is not yet law. A better deal would be simple: Europe should pursue electric vehicles with the same determination as China while making sure the jobs, factories and economic benefits stay in Europe.