EU yields to pressure from automakers as it rethinks 2035 combustion car ban

The European Commission is expected to reverse or soften the EU's 2023 law that effectively bans sales of new combustion‑engine cars across the 27‑member bloc from 2035—potentially delaying the target by about five years or leaving it open‑ended—after pressure from Germany, Italy and traditional automakers facing fierce competition from Chinese and U.S. EV makers. The concession, the bloc's biggest retreat from recent green policy, reflects industry concerns about higher EV costs, lagging consumer demand and inadequate charging infrastructure and will materially affect automakers' investment plans and the pace of Europe's electrification while drawing sharp pushback from pure‑play EV producers.

Analysis

EU executive sources and industry officials tell Reuters the European Commission is set to propose reversing or softening the EU's 2023 law that effectively banned sales of new combustion‑engine cars from 2035, with options reportedly including a roughly five‑year delay or an open‑ended loosening. Manfred Weber characterized the move as an undoing of what he called a “serious industrial policy mistake,” and officials framed this as the bloc's most significant retreat from green policy in five years.

Traditional automakers including Volkswagen and Stellantis, supported by Germany and Italy, pushed for relief citing competitive pressure from lower‑cost Chinese and U.S. EV makers (Tesla, BYD, Geely) and persistent issues: higher EV prices, lagging consumer demand and insufficient charging infrastructure. The article notes the EU in March already granted “breathing space” by allowing 2025 targets to be met over three years and that tariffs on Chinese EVs have only marginally reduced competitive strain.

Market implications favor legacy OEMs able to continue selling combustion and hybrid models and to defer capex-intensive electrification timelines, while pure‑play EV makers and rapid electrification proponents (Polestar, Tesla) see this as ceding ground to China. Reuters‑derived sentiment (score 0.32, market impact 0.5) and per‑ticker signals point to mild positives for STLA and F and pressure on PSNY and TSLA; key risks remain regulatory uncertainty, potential political backlash and a slower EU electrification trajectory.

Key Decisions for Investors

• Consider modestly increasing exposure to traditional European OEMs (for example STLA and F) versus pure‑play EV names given reduced policy risk and potential near‑term relief on compliance costs,
• Reduce or hedge positions in pure EV specialists (PSNY, TSLA) or tighten monitoring of their guidance and margins, as a softened mandate raises competitive and demand uncertainties,
• Watch for the Commission's formal text and implementation timetable, monitor EV demand trends and charging infrastructure readouts, and be prepared for headline‑driven volatility around the announcement and subsequent legislative steps