The deal promises EU factories will not become mere assembly plants, but requires only 10% local battery content. By Stewart Burnett
Germany and France have agreed on a joint position that would throw out the EU’s goal of fully climate-neutral new cars by 2035, trading looser CO2 targets for stricter ‘Made in Europe’ content rules. The deal arguably protects European assembly far more effectively than it does European technology, and the battery requirements are notably weaker than its rhetoric suggests.
Struck on the sidelines of the EU summit in Brussels on 16 October, the accord would require automakers to cut fleet CO2 emissions by 90% against 2021 levels by 2035, without offsetting the remaining 10% through low-carbon steel and renewable fuels as the Commission had previously proposed back in December 2025. Germany also secured more favourable treatment for plug-in hybrids (PHEVs) and indicative rather than binding national fleet targets. “This is an investment signal to industry,” said German Chancellor Friedrich Merz.
In return, France won Germany’s backing to restrict public subsidies and contracts to cars with 70% of their components—excluding batteries—produced in Europe. 10% of battery content must also be sourced locally. A separate scheme agreed upon aims to promote smaller, more affordable electric vehicles (EVs).
Non-EU members like the UK, Norway, Iceland and Switzerland could qualify, provided that they align with EU trade defence and investment screening. Meanwhile, Japan, South Korea and Turkey, where Renault, Toyota, Hyundai and Ford all build cars for Europe, would be excluded. “This creates a European preference to ensure that our factories do not become mere assembly plants,” an Élysée source said.
However, the battery threshold arguably undermines that claim. Batteries are the most expensive, and heavy, component in an EV, and a 10% European content requirement leaves room for cars assembled in Europe to be sold with largely Chinese cells. That includes those built by Chinese companies like CATL and Gotion now localising in Hungary and Spain. Clepa, which represents some 3,000 suppliers, said the threshold was lower than hoped and still put 150,000 high-skilled supplier jobs at risk.
PHEV makers are the clearest winners of the new rules. Combined with the EU’s 350,000-unit cap on hybrid imports, which could take effect as early as December, looser PHEV rules effectively reserve one of Europe’s fastest-growing segments for predominantly European-built vehicles.
Chinese brands took more than a quarter of the EU’s PHEV market in September 2026. Tellingly, it is also the powertrain German premium brands like Mercedes-Benz and Audi most want to keep selling after 2035.
It should be noted that the agreement is trying to loosen rules at the precise moment that the market moves towards decarbonisation. EV sales have risen 45% in 2026 to account for 22% of the EU market, according to ACEA, helped by record fuel prices linked to the war in Iran. Factoring in PHEVs and regular hybrids, electrified market share now surpasses two-thirds in the EU.
“Germany and France are making a historic mistake,” said Anna Krajinska of Transport & Environment in a statement. Renault Chief Executive François Provost insisted the industry was not retreating from electrification: “We invested like hell on EVs. Renault will continue to lead the trend on EVs. At the same time, regulation has to be pragmatic.”
For the UK, the deal likely creates an unwelcome twist. Prime Minister Andy Burnham’s government has sought Made in Europe access but is wary of matching EU measures against China, which could prompt Beijing to retaliate and would end the UK’s role as Europe’s most open market for Chinese cars. Reporting has circulated in October that the UK is weighing matching Europe’s tariffs, but no decision has been made publicly.
The deal still needs approval from member states and the European Parliament, which votes on the Commission’s proposal on 23 November, while Germany’s SPD environment minister favours a stricter 95% target.
Ultimately, the Franco-German deal may help to secure Europe’s assembly lines but it still leaves its battery supply chain largely open. It gives automakers more room to sell PHEVs and other internal combustion engine-powered models after 2035 while doing little to ensure the EVs that replace them are built from European technology. Europe is protecting where its cars are made, but perhaps not what they are made of.
