Auto giants lock horns over EU carbon regulation at IAA

Europe’s ban on the sale of new petrol and gasoline cars and vans from 2035 has been thrust firmly back into the spotlight.

The contentious issue, which was regarded as a momentous turning point when it was adopted by the European Union in 2023, has been a hot topic at the IAA Mobility auto show in Munich this week.

More than 150 leaders of the region’s electric car industry on Monday signed an open letter calling for the European Commission, the EU’s executive arm, to “stand firm,” maintain the goal of its 2035 zero-emission target for cars and vans, “and back it up with bolder action.”

The signatories — which included the likes of EV manufacturers Volvo and Polestar, as well as material suppliers, battery manufacturers and grid operators — said the introduction of the target had already triggered hundreds of billions of euros in new investment.

Any weakening of its commitment, they added, would erode investor confidence and hand a long-term competitive advantage to global competitors, such as China.

The call followed a separate letter published late last month from the heads of the European Automobile Manufacturers Association (ACEA), a car lobby group, and the European Association of Automotive Suppliers (CLEPA), an auto supplier association.

Addressed to European Commission President Ursula von der Leyen, the groups said the EU’s 2035 carbon targets were “simply no longer feasible.” The letter was signed by Mercedes boss Ola Källenius, who is currently serving as ACEA president, and Matthias Zink, CLEPA president and CEO of Schaeffler’s Automotive Technologies division.

Instead, the auto industry associations said the 27-nation bloc’s emissions reduction plan “must be recalibrated” to safeguard Europe’s industrial competitiveness, social cohesion and the strategic resilience of its supply chains, while safeguarding climate goals.

ACEA represents 16 major Europe-based automakers, including the likes of Volkswagen, BMW, Ferrari and Renault.

German Chancellor Friedrich Merz also waded into the debate on Tuesday.

Speaking at the IAA Mobility conference, Merz said “one-sided political commitments to specific technologies are the fundamentally wrong economic policy path,” according to a CNBC translation.

“They are not the path that will allow us to reliably achieve common goals,” Merz said. His comments were seen as a thinly veiled reference to the EU’s 2035 carbon regulation.

The highly anticipated talks, which come as the EU reconsiders elements of the 2035 ban on new petrol and gasoline vehicles, are expected to focus on how to address the sector’s so-called “polycrisis.”

Europe’s auto sector is grappling with a multitude of challenges, from rising production costs to U.S. tariffs, as well as supply chain disruptions and regulatory pressures.

Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, said the upcoming strategic dialogue between the EU and the bloc’s biggest automakers had revived the debate on the merits of the regulation.

European policymakers were fully aware of the reorganization and job losses at Volkswagen, Luman said, amid broader concerns that falling employment in Germany’s historic car industry could put even more positions at risk.

“We have had the automotive strategic plan with the flexibilisation of the 2025 standards and car makers are going through a tough year of competitive challenges with severe tariff-impact and margin setbacks,” Luman told CNBC by email.

Campaign group Transport & Environment, for its part, has called on the EU to hold firm over its 2035 emissions target when it hosts Friday’s dialogue on the future of the auto industry.

A spokesperson for the European Commission declined to comment ahead of Friday’s talks.

— CNBC’s Sophie Kiderlin contributed to this report.