Mercedes-Benz CEO Ola Källenius is known for his optimism, and he’s got valid reasons to feel that way. He has consistently urged the European Union to reconsider its ambitious target of phasing out new internal combustion engine (ICE) cars, suggesting that adjusting the rules is more about practicality than giving in to detractors of Europe’s green initiatives. His advocacy is yielding results. In a recent interview with The Verge, Källenius stated that the strict deadlines for phasing out combustion engines after 2035 are “no longer feasible,” primarily due to infrastructure issues and slow consumer adoption of electric vehicles (EVs). He emphasized the need for flexibility to safeguard jobs and competitiveness while providing consumers with more choices and ensuring that manufacturers can afford the transition profitably. “This is not a retreat,” he defended the proposed loosening of the 2035 deadline. “It is an upgrade to a smarter strategy that aligns Europe’s ambitions with a thoughtful plan for success.”
Historically, when the economy was strong and jobs were plentiful, there was substantial support in Europe for an aggressive climate agenda. Now, with economic challenges and a wave of layoffs in the automotive sector, public sentiment is moving towards a more gradual transition.
Källenius highlighted that automakers have demonstrated their commitment to combating climate change through significant investments over the past decade in new technologies, electric vehicles, and battery plants. “A more pragmatic approach could serve Europe’s climate goals more effectively,” he mentioned. “The ultimate target of achieving CO2 neutrality in the EU by 2050 remains unchanged, but the approach to reaching that goal can change.”
Currently, European law mandates a ban on the sale of new internal combustion engine cars after 2035. The EU would need to either repeal this law or amend it to create exceptions for the continued sale of conventional cars.
At their October summit, European leaders directed the Commission, the EU’s executive branch, to review the ICE car ban and propose changes by year-end to slow down Europe’s swift move toward a carbon-free future. The Commission has indicated that it is considering more “technology neutrality,” which analysts interpret as potentially permitting plug-in hybrids and ICE vehicles using synthetic or biofuels with lower emissions compared to conventional fuels. This shift has been a long-standing demand from the auto industry, which wants these hybrids and alternative-fuel vehicles to be categorized as zero-emission, even if they utilize internal combustion engines post-2035.
Critics, however, warn against diluting the EU’s automotive regulations. Lucien Mathieu, cars director at the Brussels-based lobby group Transport & Environment, remarked, “Transforming the EU’s pivotal automotive regulation into Swiss cheese will not restore the industry’s competitiveness.” He cautioned that yielding to these demands would only bolster the competitive advantage of Chinese automakers.
Källenius pointed out that even after 2035, over 200 million conventional cars would still be on the roads. Without access to alternative fuels and new ICE models to replace aging cars, this could lead to a “Havana effect,” causing the vehicle fleet to become older and negatively impacting both the climate and the economy.
Germany is advocating for a weakened ban and a more extended transition period. With its economy struggling after two years in recession, the woes of the auto industry run deep. Auto production in Germany peaked in 1998 but plummeted by 25% during the COVID-19 pandemic in 2020 and has continued to decline ever since. Increased competition from lower-cost Chinese automakers has also heightened concerns about the nearly 800,000 jobs that the automotive sector provides in Germany.
Political leaders are anxious about rising support for right-wing populism stemming from economic uncertainty. In response, the government is backing industry calls to relax climate targets and provide a lifeline to gasoline-powered vehicles. “There will be no hard cut” in 2035, promised German Chancellor Friedrich Merz after meeting with auto industry executives in September.
Slowing the transition to EVs aims to give carmakers and suppliers more time to profit from their most lucrative models and maintain their competitive edge, particularly against emerging Chinese manufacturers. There is a risk, however, that delaying the EV shift could jeopardize the vast investments made in EV charging infrastructure and battery plants, potentially leading to job losses too.
French President Emmanuel Macron warned, “If tomorrow we abandon the 2035 objective, forget about European battery factories,” referring to the gigafactories currently under construction across Europe as a direct result of the 2035 mandate. Instead, he supports modifying the law to permit hybrids and vehicles powered by alternative fuels.
Allowing the continued sale of conventional cars as hybrids or vehicles using low-emission fuels is merely one facet of a broader compromise. To stimulate sales of affordable EVs, Europe is also exploring incentives for battery electric vehicle purchases. Manufacturers might be required to use a specific percentage of European-made components to qualify for EV subsidies, promoting jobs and countering inexpensive Chinese imports.
As officials debate ways to assist automakers, the industry’s situation grows increasingly desperate. This year, the only growth in Europe’s automotive market has stemmed from electric vehicles and hybrids, yet many manufacturers still struggle to turn a profit due to high costs associated with developing new technologies and low sales volumes of EVs.
In the nine months leading up to September, Europeans purchased 1.3 million battery-electric vehicles, comprising about 16% of total new car sales, according to ACEA, Europe’s auto lobby. However, the gains in electric and hybrid vehicles could not mitigate the sharp decline in ICE car sales. Overall, new car sales in Europe increased by a mere 0.9% in the first nine months of the year.
For some automakers, the proposed changes don’t go far enough. BMW CEO Oliver Zipse expressed concern that under current EU regulations, manufacturers gain no benefit from their investments in carbon-neutral technologies or low-emission factories. He criticized the EU for focusing solely on tailpipe emissions rather than assessing the entire carbon footprint of vehicles. “We’re not asking for a reduction of targets; we’re asking for a different framework,” stated Zipse, emphasizing that the efforts to lower their CO2 emissions haven’t been reflected in regulations.
Some environmental groups caution against promoting plug-in hybrids at the detriment of fully electric vehicles. A recent study by Transport & Environment found that plug-in hybrids emit nearly five times more CO2 during real-world driving than what official tests suggest. Even in electric mode, PHEVs consume more fuel than manufacturers claim because their combustion engines activate during acceleration or uphill driving.
Annual fuel and charging expenses can be about €500 higher than advertised, and with an average purchase price of €55,700 in 2025, plug-in hybrids are also €15,200 more expensive than battery-electric vehicles. T&E’s Mathieu called plug-in hybrids “one of the biggest cons in automotive history.”
Peter Mock, Europe managing director of the International Council on Clean Transportation, dismissed the idea that plug-in hybrids serve as a transitional step to full electrification. He pointed out that most drivers who switch to battery-electric vehicles stick with them, while many plug-in hybrid owners eventually revert to combustion vehicles. He highlighted Denmark, where battery-electric vehicles comprise roughly 70% of new sales, and Belgium at about 40% as examples of how to accelerate EV adoption. He argues that a combination of EU CO2 standards and national tax policies that increase costs for combustion cars while subsidizing EVs can create a self-sustaining system.
Regarding e-fuels, Mock noted their inefficiency and high cost compared to electric options. “For road transport, electrification is by far the better choice,” he asserted. “E-fuels are a distraction.”
The EU’s climate initiatives from the past decade have attracted significant investment from dedicated EV manufacturers, battery producers, and other suppliers in the EV supply chain. This led over 200 industry leaders to sign an open letter urging the Commission to “Stand firm, don’t step back” against lobbying from traditional automakers.
Michael Lohscheller, CEO of Polestar, warned that weakening the 2035 ban would penalize businesses that have already committed to electrification. “It undermines the basis for the investments companies like us have made,” he explained, referencing the extensive negotiations that shaped the current framework, including discussions with legacy automakers now trying to backtrack. While a delay could alter EV demand dynamics, Lohscheller maintained, “the shift will still happen and is already underway, as evidenced by the strong demand for our vehicles across many European markets.”
He cautioned that weakening climate goals could leave Europe lagging behind global competitors. “We will become even less competitive in the future. The rest of the world will not stand still; they will continue to innovate, jeopardizing future jobs in the EU.”
Others share his concern. Lawrence Hamilton, president of Lucid Motors Europe, asserted that revisiting the EU’s 2035 combustion vehicle ban could confuse consumers and hamper EV adoption. “It distracts from engaging consumers,” he noted, suggesting that if the ICE ban is rolled back, consumers may believe they have extra time, leading to delayed adoption.
Hamilton stressed the need for consumers to start thinking about switching to EVs now, given the lengthy car replacement cycles—often seven years or more. He pointed out that EVs are nearing price parity with gasoline vehicles and have often demonstrated a lower total cost of ownership, effectively alleviating previous concerns about range.
For European automakers aiming to regain their competitiveness—especially against Chinese manufacturers—the solution isn’t to slow the transition to electric vehicles but to commit to it and address their structural challenges. “They need to bridge the battery cost gap, embrace software and AI-driven manufacturing, and rediscover the entrepreneurial urgency that their Chinese rivals exemplify,” said Andy Palmer, who played a pivotal role in advancing electric vehicle technology at Nissan and later served as CEO of Aston Martin. “Europe has a wealth of engineering talent, but it’s held back by bureaucracy and outdated mindsets. They need to catch up, and quickly.”
