The European Union’s plan to phase out combustion engine vehicles by 2035 is becoming increasingly complex as industry players call for a more flexible, technology-neutral approach amid geopolitical and supply chain uncertainties.
The European Union’s plan to ban combustion engine (ICE) vehicles by 2035, which was once seen as a clear-cut milestone in cutting down automotive emissions, has turned into a pretty tangled regulatory mess. It’s now a battleground where shifting political priorities clash with industrial pragmatism. This shift really highlights the wider challenges automakers and investors are facing — as they try to navigate a landscape that’s becoming more unpredictable, especially when it comes to the pace and technology choices for the transition.
Initially, the goal was pretty straightforward: halt new ICE car sales by 2035 to push toward a zero-emission future. But lately, the European Commission has started to question this tight timeline, mainly because of ongoing worries from the industry about fragile supply chains, not enough infrastructure, and stiff international competition—particularly from China. In response, they've introduced a three-year period for averaging compliance between 2025 and 2027. Basically, this gives automakers a bit more leeway to meet CO₂ targets without penalties. This regulatory flex reflects the reality that sticking rigidly to such a strict deadline might harm Europe’s automotive industry’s global competitiveness or even cause market instability.
Political dynamics within the EU make things even more complicated. The European People’s Party (EPP), which holds a lot of sway in the European Parliament, has expressed doubts about the economic impacts of the ban and is pushing either to soften or completely reverse it. Meanwhile, big manufacturers like BMW and Mercedes-Benz are calling for a more flexible, technology-neutral approach—one that doesn’t just focus on electrification but also includes hybrid systems and alternative, more climate-friendly fuels like e-fuels and biofuels. This shift towards a broader, more inclusive toolkit for decarbonization seems to be gaining ground.
BMW is a prime example of this adaptable mindset. Despite its big push toward electrification, it’s still heavily investing in advanced combustion engines and hybrid tech, preparing for scenarios where ICE vehicles powered by renewable fuels stay viable. CEO Oliver Zipse has even slammed the 2035 ban as a “big mistake,” arguing that a more comprehensive approach—considering actual lifecycle emissions, including battery production and fuel sourcing—is critical for real sustainability. BMW’s success in surpassing its 2024 EU CO₂ targets by 12% shows that a diversified strategy can be effective. Plus, it positions them well if future policies become more flexible.
On the flip side, automakers that are fully committed to battery electric vehicles (BEVs) face some real risks. Take Hyundai and Kia—they’ve expanded their EV production significantly in Europe, but if the ban gets delayed or relaxed, all those heavy investments in battery cell factories and charging networks could be in jeopardy. Kia’s Europe boss, Marc Hedrich, has voiced worries that changing the ban could rack up “a fortune” in costs and throw their carefully planned EV rollout off course. And Tesla, which is all about BEVs, might also find itself exposed if future laws favor alternative fuels or extend the lifespan of ICE vehicles.
Financially speaking, the stakes are pretty high. BloombergNEF estimates that just delaying the ban by a year could cost EV-focused companies as much as €15 billion in lost revenues, thanks to stranded assets and supply chain issues. Meanwhile, manufacturers like BMW—who mix hybrid and ICE tech with their EV lines—are better suited to handle shocks and can adjust their investments more flexibly while still maintaining market share.
From an investment standpoint, backing automakers with diversified tech portfolios seems smarter because it offers better regulatory flexibility and risk reduction. As emissions standards keep evolving, companies that can adapt quickly—by shifting between EVs, hybrids, and alternative fuels—are in a stronger position. This reduces the risk of heavy losses if policies change suddenly or if delays happen. It also helps protect profit margins and competitive advantage by reallocating resources based on market demands.
All in all, the debate over the EU’s 2035 combustion engine ban isn’t just about EVs versus ICEs anymore. It’s become a nuanced conversation that recognizes decarbonization needs to balance technological readiness, economic realities, and global competition. The smart move for industry players—whether manufacturers, suppliers, or investors—is likely to be one of diversification and staying flexible with policy shifts. BMW’s approach—melding electrification with ongoing ICE innovation—actually provides a pretty solid example of how to navigate this complex transition in the coming years.
Source: Noah Wire Services
