The EU relaxes restrictions on fuel vehicles, but can car companies go back? Hundreds of billions have been invested, and the endgame of electrification is hard to change

Brussels has proposed to abandon the 2035 deadline for a complete transition to electric vehicles, a policy shift that gives European traditional automakers more time to sell hybrid vehicles. However, analysts point out that despite the significant concessions in policy, considering the enormous sunk costs already invested in the automotive industry, electric vehicles remain an inevitable future for the industry's long-term development. According to Reuters, the European Commission announced a plan this Tuesday to propose the cancellation of the 2035 deadline that essentially bans internal combustion engine vehicles. Under this new proposal, plug-in hybrid vehicles, range-extended electric vehicles that use small internal combustion engines to charge batteries, and even some traditional internal combustion engine models will still maintain legal status after 2035. Additionally, Brussels proposed the establishment of a new category for small electric vehicles and provided extra points for emissions support for models produced in Europe. This policy stance not only marks a significant adjustment in the EU's regulatory environment but also creates a divergence from the path taken by the United States, where former President Trump had withdrawn support for electric vehicles. For high-end brands like Mercedes-Benz and BMW, this means they have a longer window to sell plug-in hybrid models before having to fully transition to electric vehicles; for manufacturers like Stellantis and France's Renault, which have a wide range of small models like the Fiat 500 and Clio, they are expected to benefit from the new category of subsidies for small electric vehicles aimed at urban residents. Despite gaining "breathing space," industry experts warn that the policy's unpredictability poses challenges for companies that have already allocated capital based on 2023 laws. Previously, automakers and suppliers had invested hundreds of billions of euros in designing electric vehicles and expanding factory capacity. Analysts believe that while this policy reversal may provide short-term benefits for traditional technologies, it does not change the long-term capital logic of the automotive industry's transition to electrification. Policy shift trades hybrid for a buffer period, but market doubts remain about long-term share of electric vehicles The core of the EU's policy adjustment lies in allowing traditional automakers more choices in their technological pathways. According to the new proposal, hybrid technology will continue to play an important role in the next decade. Phil Dunne, managing director of consulting firm Grant Thornton Stax, stated that the European Commission's move gives the European automotive industry room to make choices and gain competitive opportunities. However, market consulting firms are cautious about the long-term impact of this policy change on actual sales. Before the announcement on Tuesday, consulting firm AlixPartners predicted that by 2035, the sales share of all-electric vehicles in Europe would only be 62%, as the market is not confident that the ban can be thoroughly enforced. AlixPartners partner Nick Parker expressed that he does not believe the consulting firm's predictions will change significantly due to the new policy. Moreover, the slowdown in the transition to electrification objectively wins time for the market to build charging infrastructure. Even staunch supporters of electrification admit that the lag in infrastructure is one of the main reasons for the currently low penetration rate of electric vehicles. Industry data shows that as of October this year, sales of all-electric vehicles in the EU increased by 25.7% year-on-year, accounting for 16.4% of total sales, but this proportion remains very low in Southern and Eastern European markets Policy Shift Hits Aggressive Transformers, Automakers Face Hundreds of Billions in Investment Risks and Accelerate Search for Cooperation The sudden policy shift is a blow to those aggressive transforming automakers. The EU's internal combustion engine ban only officially became law in 2023, and many companies have based their long-term capital expenditure plans on this. This policy change means that the hundreds of billions invested in R&D and capacity building based on old policies now face the risk of extended return cycles or strategic mismatches. Just a day before the EU announced this news, American automotive giant Ford publicly announced a $19.5 billion asset write-down and plans to cancel several electric vehicle models. This industry turmoil has prompted companies to seek closer cooperation to share risks, such as Ford's recently announced collaboration plan with French company Renault, aimed at jointly developing small electric vehicles. Joe Stevenson, CEO of UK startup Anaphite, pointed out that this situation will ultimately drive more collaboration and platform sharing among automakers. His company is working on developing battery electrode dry coating technology that can reduce the cost of electric vehicles. Industry Calls for Policy Certainty Faced with the fluctuating regulatory environment, automotive industry executives have expressed a strong demand for policy certainty. As early as March this year, the European Commission granted the automotive industry a "breathing space," allowing it to meet the 2025 emission targets over three years, but nine months later proposed further amendments. Ford CEO Jim Farley urged Brussels to select a policy and stick to it before Tuesday's announcement, rather than making adjustments every few months. Farley stated bluntly, "This is not how to plan for long-term capital investments; we need certainty."