China’s Shadow: Why Germany’s ICE Ban U-Turn Signals the Crisis of Europe’s EV Timeline

The Architect of the Green Deal Demands a Retreat

In a move that has sent shockwaves through Brussels and across the global automotive supply chain, German Chancellor Friedrich Merz has officially urged the European Union to relax the pivotal 2035 ban on new combustion engine (ICE) vehicle sales. This is not mere lobbying; it is Germany, the economic engine of Europe’s auto industry, calling for a retreat from a cornerstone of its own ‘Fit for 55’ climate policy. The ‘twist’ in this geopolitical and industrial drama is simple: Europe’s foundational EV timeline is failing its stress test against two overwhelming forces: *China’s ascendance* and *internal market deceleration*.

As an Auto Market Insight Analyst based in China, the view from Shanghai is clear: this is a strategic capitulation forced by external competitive pressure. The EU’s ambition has collided with economic reality, and the continent’s OEMs need flexibility—fast.

The Chinese Imperative: Why Flexibility is the New Mandate

The German government’s newfound consensus, secured despite previous internal coalition disagreements, is a direct acknowledgement of the escalating competitive threat from Asia. European legacy manufacturers like Volkswagen, Mercedes-Benz, and BMW are facing an existential need to conserve capital and re-strategize in the face of hyper-efficient Chinese rivals. This pressure is quantified:

• Escalating Penetration: Sales of Chinese-branded vehicles in Europe have skyrocketed, climbing from just 17,000 units in 2019 to a massive 360,000 units in 2023, representing a Compound Annual Growth Rate (CAGR) exceeding 110%.
• Market Share Leap: Critically, Chinese brands have more than doubled their overall market share in key periods, nearly hitting 6% of total European car sales in a recent month of 2025.
• The BEV Edge: While general market penetration is still moderate, the Chinese presence in the pure Battery Electric Vehicle (BEV) segment is three times larger, forcing European OEMs to invest billions simply to catch up in a segment where prices are being undercut.

By urging the EU to allow Plug-in Hybrids (PHEVs) and efficient ICE vehicles beyond 2035, Germany is buying its domestic automakers critical time. This buffer allows them to fund the necessary multi-path technology development while simultaneously competing against the affordable, BEV-focused threat from manufacturers like BYD and SAIC-owned MG.

The Unflattering EV Reality: A Market in Reverse

The second pillar of Merz’s argument—slower-than-anticipated European EV adoption—is backed by stark, alarming data. The core markets of Europe are showing signs of an accelerated ‘EV slump,’ largely due to the high cost of transition and the abrupt removal of consumer subsidies.

• The Subsidy Cliff: August 2024 saw Battery Electric Vehicle (BEV) sales in the European Union plummet by 43.9% year-on-year. The largest market, Germany, experienced an even more shocking decline of 68.8% in the same period, dragging the overall BEV market share down significantly.
• The PHEV Retreat: In Q3 2023, PHEV sales in Germany alone fell by 42% following the cessation of subsidies, demonstrating the market’s reliance on fiscal stimulus rather than organic consumer demand.

The new, unified German position, outlined in the letter to European Commission President Ursula von der Leyen, is a plea for ‘technology-neutral, flexible, and pragmatic CO2 emissions regulations.’ This approach advocates for keeping the door open for plug-in hybrids, range-extended EVs, and even combustion engines running on certified e-fuels and advanced biofuels after the 2035 deadline.

The Policy Aftermath: Brussels in Flux

The impact of Germany’s diplomatic offensive is already evident in Brussels. The EU Transport Commissioner indicated that Merz’s letter was received “very positively,” confirming the Commission would remain “open to all technologies” when reviewing fleet emission limits. Furthermore, the expected mid-December announcement on updated carbon emission targets is now likely to be delayed, underscoring the serious policy re-evaluation now underway.

While the German Automotive Industry Association (VDA) praises the move as a good signal for jobs, environmental groups like Transport and Environment (T&E) condemn it as a “clinging to obsolete technology.” The debate is now squarely positioned between climate ambition and industrial survival.

The Analyst’s Takeaway

Europe’s EV roadmap just gained an off-ramp. The shift from a strict, linear 2035 ban to a ‘technology-neutral’ approach is a forced move—a hedge against the dual threat of Chinese market saturation and the high cost of a pure-BEV transition. European OEMs will now re-allocate capital, slowing the all-in EV bet to invest in high-efficiency hybrids and e-fuel solutions. The coming years will not be an EV sprint, but a multi-powertrain marathon, dictated not by climate policy alone, but by competitive reality from the East.

Recommended Reading (Affiliate)

For a deeper dive into the geopolitical competition driving these global technology decisions, we recommend:

• Chip War: The Fight for the World’s Most Critical Technology – By Chris Miller. This book provides essential context on how geopolitical rivalry over foundational technologies is reshaping global industrial policy and national security.