Is the EV Tide Turning? EU’s 2035 ICE Ban Backflip and China’s SE Asia EV Push
The Great EV Policy Pivot: Western Regulators Waver While Chinese EV Makers Go Global
Will Western automakers be stuck between a rock and a hard place as the ‘inevitable’ transition to Battery Electric Vehicles (BEVs) hits political turbulence? The biggest news rocking the global auto industry isn’t a new battery breakthrough, but the potential **EU 2035 ICE ban rollback** after reports suggested the bloc’s largest political party, the EPP, is pushing to scrap the full prohibition on new combustion engines. For Western investors and consumers accustomed to the hard-and-fast 2035 deadline, this signals a massive shift in regulatory certainty, potentially easing pressure on legacy brands like VW and BMW who have publicly called for a reconsideration amid slower-than-expected EV adoption.
While Europe grapples with its regulatory roadmap, Chinese giants are aggressively cementing their global footprint, particularly in Southeast Asia (ASEAN), illustrating a stark contrast in commitment to pure-EV expansion.
Europe’s Electric Sunset Postponed? Analyzing the Policy Whiplash
The original 2035 mandate effectively forced automakers to sell only zero-emission vehicles. Now, the European People’s Party (EPP) leader, Manfred Weber, suggests the new proposal targets a 90% reduction in fleet CO2 emissions by 2035, leaving the door open for a fraction of Internal Combustion Engine (ICE) sales, possibly utilizing alternative fuels. This is framed by the EPP as ‘technological neutrality’ and a move to secure industrial jobs.
- The Pivot: A 90% cut replaces the 100% zero-emission requirement for new cars post-2035.
- Conflict: Environmental groups, like the European Green Party, view this as a ‘grave mistake’ that stifles innovation and cedes EV leadership to China.
- Contrasting Stance: Notably, the UK remains firm on its 2035 target, creating a divergence within the European mobility landscape.
- Internal Industry Reaction: Some automakers, including VW, Renault, Mercedes-Benz, and BMW, have previously signaled support for dropping the outright ban, citing consumer hesitation.
The Western Legacy Dilemma: Volatility vs. Chinese Momentum
This regulatory uncertainty is a double-edged sword for Western OEMs. It offers a potential lifeline for their complex ICE supply chains, exemplified by Volkswagen closing a German production line for the first time in 88 years amidst market pressures. [cite: Source Data] However, it also muddies the investment waters for future EV platforms. Furthermore, Volkswagen is actively hedging its bets by testing its Gen.Urban autonomous vehicle in real urban traffic in Wolfsburg, signaling continued, albeit perhaps more measured, investment in future mobility tech.
See our analysis on the state of European EV charging infrastructure.
Chinese EV Makers Double Down: Malaysia Manufacturing a Strategic Leap
In sharp contrast to the policy indecision in Europe, Chinese EV firms are executing aggressive, concrete manufacturing strategies in Southeast Asia. Xpeng plans to commence local production in Malaysia in 2026 through a partnership with EP Manufacturing Berhad (EPMB), positioning the country as a strategic hub for right-hand-drive (RHD) markets. This follows Xpeng’s earlier move to establish assembly in Indonesia and Austria.
- Models & Timeline: The CKD assembly will initially include the G6 and X9 models, starting production as early as March 2026.
- Market Context: Malaysia’s BEV market has seen sales surge over 200% year-on-year in 2024, indicating a rapid transition from early adoption to mass growth.
- Strategic Goal: Local production aims to bypass potential trade barriers and better tailor intelligent products to regional preferences.
Global Moves by Chinese and European Players
The global automotive chessboard is constantly shifting:
- Changan Expands: The Chinese OEM is entering Italy and Spain with pure EVs like the Deepal S05 and S07.
- VW’s European Retrenchment: Volkswagen is closing its Dresden plant—the first time since its founding 88 years ago—due to weak sales in China and Europe. [cite: Source Data]
- Honda’s Counter-Move: Honda is considering importing some U.S.-made models (like the Ridgeline SUV) into Japan, capitalizing on potential relaxed import restrictions. [cite: Source Data]
Recommended Reading for Auto Analysts
To fully grasp the complexities of navigating global trade and supply chain risk in this volatile sector, we recommend:
‘Tides of Power: Why Power Shifts, Why They Last, and How to Survive the Changing World Order’ by Peter Zeihan.
Analysis for the Western Investor: While the potential EU ICE reprieve offers legacy automakers a brief respite and a chance to recalibrate EV timelines, the aggressive, long-term localization strategy by Chinese players like Xpeng in ASEAN signals where the future manufacturing momentum lies. Western markets must decide whether to chase technological neutrality or commit fully to the EV roadmap to compete effectively.