Abandoning EU's 2035 zero-emission car target would risk 1 million jobs, study says

A study by Transport & Environment suggests the European automotive industry could rebound to its post-2008 peak production and increase its economic contribution by 11% by 2035, creating over 220,000 jobs, if the EU maintains its 2035 clean car targets and implements supportive industrial policies. Conversely, abandoning the 2035 target without a comprehensive strategy risks a loss of 1 million jobs and a €90 billion economic contribution, underscoring a critical juncture for Europe's competitiveness in the global EV market amid existing challenges like U.S. tariffs.

Analysis

The European automotive industry faces a critical inflection point, with its future trajectory heavily dependent on the European Union's commitment to its 2035 clean car mandate. According to a study by Transport & Environment, maintaining this target and implementing supportive industrial policies could enable the sector to match its post-2008 production peak of 16.8 million cars annually, grow its economic contribution by 11%, and create over 220,000 jobs in batteries and charging by 2035. Conversely, abandoning the 2035 goal could have severe negative consequences, including the potential loss of 1 million jobs, a €90 billion contraction in the value chain's economic contribution, and the cancellation of two-thirds of planned battery investments. This policy uncertainty exacerbates existing challenges for European automakers, such as high domestic costs, a competitive gap with US and Chinese EV manufacturers, and the looming threat of US tariffs. The recent softening of some EU CO2 targets signals that the regulatory framework is not immutable, making policy risk a primary factor for the sector's outlook.

Key Decisions for Investors

• Investors with exposure to European automakers should closely monitor EU legislative developments regarding the 2035 emissions targets, as any further softening or reversal of the policy constitutes a major headwind for the sector's EV investment case.
• Given the starkly divergent outcomes based on policy, consider a strategy that hedges against regulatory uncertainty, potentially by balancing positions in traditional European OEMs with investments in the global EV supply chain or non-EU automakers.
• Focus on identifying companies within the European auto ecosystem that demonstrate resilience, such as those with significant progress in domestic battery production or established supply chains that are less vulnerable to potential trade tariffs.