Europe’s Revised 2035 Emissions Rules Leave Carmakers Reassessing Plans

A Policy Shift That Changes the End Goal

For years, European automakers planned around a simple assumption: after 2035, new passenger cars with combustion engines would no longer be sold in the European Union. That clarity is now fading. Recent moves in Brussels to revise the rule have replaced an outright ban with a more flexible emissions-based target, and the change is prompting concern among manufacturers that had already committed to a full electric transition.

Mercedes-Benz, which previously urged regulators to reconsider the pace of electrification, is now warning that the revised framework may create more instability rather than certainty. According to CEO Ola Källenius, the new direction risks shrinking the market during the transition period because companies no longer have a single, predictable endpoint to plan against.

From Absolute Ban to Emissions Target

Instead of eliminating combustion-engine sales outright, the European Commission is proposing a requirement that new vehicles sold after 2035 achieve a 90% reduction in CO₂ emissions compared with 2021 levels. While this still strongly favors electric vehicles, it leaves room for alternative powertrains to remain on the market.

The proposal must still pass through the EU’s legislative process, and further revisions are possible. That lack of finality is precisely what troubles automakers. A firm deadline, even a demanding one, allows companies to model costs, supply chains, and investments. A rule that is still evolving forces them to hedge their bets.

Why Uncertainty Can Be More Costly Than a Hard Deadline

Automakers like Mercedes-Benz often claim flexibility in producing different drivetrains. In practice, however, long-term product planning relies on stable assumptions. Developing vehicles typically spans a decade or more, and sudden regulatory adjustments can ripple through budgets and production strategies.

Many European brands had already begun winding down investment in new combustion engines, redirecting capital toward batteries, electric motors, and software. The softened target now pressures them to keep internal combustion and hybrid development alive longer than planned, increasing costs and complicating resource allocation.

The Return of Engine Development Pressures

One immediate consequence of the policy change is renewed spending on combustion technology. This comes at a time when new engines must also comply with Euro 7 emissions standards, set to take effect later this year. Meeting those requirements is significantly more expensive than previous regulations, especially for low-volume or niche powertrains.

Money that was once earmarked for accelerating electrification must now be split across multiple technologies. For manufacturers, that means higher overall spending with less certainty about future returns.

What the Sales Mix Could Look Like After 2035

Although the revised rules allow combustion vehicles to remain technically legal, analysts still expect electric cars to dominate. The clean-transport group Transport & Environment estimates that roughly 85% of new EU car sales after 2035 could still be fully electric under current assumptions.

The actual outcome depends heavily on what automakers choose to offer. If plug-in hybrids and range-extender vehicles continue to play a major role, models with combustion engines could still account for up to half of sales. In a more aggressive EV-focused scenario, combustion-based vehicles might fall to around 5%, leaving battery-electric models with a near-total share.

Carmakers Adjusting Product Strategies

Manufacturers are already responding. Mercedes-Benz, for example, is preparing a new generation of electric vehicles designed to resemble its traditional sedans more closely, following mixed reactions to its earlier EQ-branded designs. Upcoming electric versions of the C-Class and E-Class aim to appeal to buyers who prefer familiar styling.

Other brands are making even sharper pivots. Porsche has confirmed renewed development of combustion-powered successors for models once expected to go fully electric, reflecting both regulatory ambiguity and questions about demand in certain segments.

A Global Pattern, Not Just a European One

Europe’s situation mirrors recent developments in the United States, where shifting policy signals have also pushed automakers to reconsider electrification timelines. These reversals are expensive. General Motors has cited billions of dollars in losses linked to canceled contracts, while Ford has warned that altering its EV strategy will cost tens of billions over several years.

While Europe’s changes are less abrupt, they still complicate long-term planning. For companies that invest on decade-long cycles, a moving regulatory target means preparing multiple strategies at once—an approach that inevitably raises costs and risks.

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