The China Shock: How Competition from Beijing is Forcing the EU to Rethink its 2035 Car Ban

A high-stakes political battle is underway in Brussels, sparked by a direct intervention from Germany that could fundamentally alter the European Union’s flagship climate policy: the 2035 ban on new combustion engine vehicles (ICE). The catalyst for this dramatic shift? The rising pressure and ‘fierce competition from Chinese car companies’.

German Chancellor Friedrich Merz recently wrote to European Commission President Ursula von der Leyen, urging her to soften the 2035 deadline and inject ‘flexibility’ into the bloc’s decarbonization plan. Merz, a long-time advocate for the powerful German automotive sector, argued that the current timeline for phasing out combustion engines is ‘unrealistic’ given the precarious situation facing European automakers.

**The Core Argument: China, EV Slump, and Jobs**

While the EU’s 2035 rule requires new cars to achieve zero CO2 tailpipe emissions—effectively banning new petrol, diesel, and hybrid sales—the industry’s landscape has dramatically changed since the rule was drafted. European car manufacturers like Volkswagen, Mercedes-Benz, and BMW are grappling with a complex set of challenges: high costs for ramping up EV production, weaker-than-expected electric vehicle sales in Europe, and ‘surging competitive pressure from China’.

In a crucial sign of the political stakes, Germany’s governing coalition—including the previously reluctant Social Democrats (SPD)—reached a consensus to support Merz’s push. Their key argument is the ‘future viability of the German automotive industry’ and ‘securing jobs’. Merz’s letter advocates for a ‘technology-neutral, flexible, and realistic CO2 regulation’.

**The ‘Flexibility’ Germany Demands**

The German government is formally requesting a series of exemptions to be allowed beyond 2035, including:

* **Plug-in Hybrids (PHEVs):** Allowing the continued sale of PHEVs and ‘highly efficient’ combustion engines.
* **Range-Extended EVs:** Permitting electric vehicles that use a small, highly efficient combustion engine as a backup for long journeys.
* **Biofuels and Green Steel:** Counting emissions reductions achieved during the manufacturing process, such as using renewable energy to produce ‘green steel,’ towards fleet CO2 limits.

This call for flexibility is a direct response to a market reality where European companies are struggling to compete with cost-effective and technologically advanced Chinese EV rivals. By allowing hybrids to remain on the market longer, Germany is attempting to buy its legacy manufacturers more time to complete the costly transition while protecting jobs and its industrial base.

**What’s Next in Brussels?**

The timing of Merz’s letter is strategic, as the European Commission is scheduled to announce an updated package on automotive sector carbon emissions targets on December 10. In a potentially conciliatory move, a European Commissioner has already signaled that Brussels received Merz’s letter ‘very positively’ and is willing to be ‘open to all technologies’ in the review.

While German industry groups, such as the VDA, have welcomed the government’s move, environmental groups warn that weakening the ban amounts to a ‘deliberate evasion of reality’ that risks delaying the EU’s climate goals and locking in obsolete technology. The coming Commission announcement will reveal whether the economic shockwave from China has been powerful enough to destabilize Europe’s core climate change legislation.