Brussels is protecting Europe's car industry when it should be helping it adapt, according to a new study from Bruegel, the influential economic think tank based in the Belgian capital. The report argues that the EU's recent automotive package — tariffs on Chinese electric vehicles, proposed local-content requirements and a softening of the 2035 combustion-engine ban — sets the sector on the wrong path and could add more than €2,000 to the sticker price of an electric car.
"This approach is misguided," the authors write, adding that "because of climate and costs, the future is electric. Discussions on slowing the transition to EVs are an unhelpful distraction."
A pact whose costs stay hidden
Bruegel describes current policy as an implicit bargain: the EU shields domestic producers from foreign competition, and in return those producers bring their supply chains into Europe. Consumers and taxpayers, the report says, foot the bill.
The numbers are stark. Requiring battery cells to be manufactured inside the EU would lift their cost from roughly €50 to €85 per kilowatt-hour, adding about €2,100 to a typical electric vehicle. A low-carbon steel mandate would tack on a further €200, while the Commission's proposed simplified vehicle approval rules would save manufacturers only about €61 per car. The burden falls hardest on cheaper models and less affluent buyers.
The underlying tension, Bruegel argues, is that the cheapest route to electrification runs through global supply chains, while the most resilient runs through domestic ones. "The automotive package attempts to do both at once, with the costs largely hidden from view," the authors write.
France offers an early warning. Its consumer subsidy scheme, which in practice excludes Chinese-made models, saw sales of ineligible electric cars fall 60% relative to eligible ones and may have slowed overall EV uptake. Constant policy revisions compound the damage: "regulatory unpredictability is itself a competitiveness cost," the report states.
Tariffs that miss their target
The study also identifies a flaw in the EU's tariffs on Chinese electric vehicles, imposed in October 2024 at rates of up to 35.3%. They apply to fully electric cars but not to plug-in hybrids. Since then, imports of the former have flattened while hybrid imports have surged, "undermining the value of these duties as a shield for European production" and favouring more polluting vehicles. Chinese-built EVs passed 20% of EU electric vehicle sales this year, with more than half carrying Western brands.
The backdrop is an industry under strain, Germany's above all. Volkswagen has flagged around €10 billion in one-off charges, cut its profit margin forecast to at most 1% and was removed from the Euro Stoxx 50 index. Stellantis, the Franco-Italian group behind Peugeot and Fiat, was dropped from the same index last year. Some plants are leaving car-making altogether: Volkswagen agreed to sell its Osnabrück factory to the state of Lower Saxony and Tel Aviv-based Aurelius Capital, which plan to work with Rafael, one of the firms behind Israel's Iron Dome, on air-defence components. Rheinmetall has been converting parts of its civilian automotive production to military use.
Bruegel's figures show the scale of the retreat. EU car production has fallen by around 2.6 million units since 2019, or 19%, while Europeans bought 2.2 million fewer new cars last year than in 2019. The sector still employs 14 million people across its value chain, 6% of all EU jobs.
Yet the think tank insists this is not collapse. The industry remains a large net exporter, recorded historically high profit margins and invests around €3 billion a quarter in battery and EV plants. "The sectoral risk is not collapse but erosion of export markets, technological leadership and supplier networks," it writes, adding that "for this, the EU needs an adjustment strategy rather than a shield against change."
What Bruegel proposes instead
The report recommends equalising tariffs between fully electric and hybrid vehicles and pursuing a time-limited deal with Beijing setting export quotas for both, backed by a snapback mechanism if breached. The EU has reportedly made a first approach to China this month precisely about limiting hybrid exports, and the suggestion has precedent. Europe capped Japanese car imports through the 1990s, which raised prices for consumers but gave domestic producers breathing space and drew Japanese factories into Europe. Canada this year opened a quota letting 49,000 Chinese electric vehicles in at a 6.1% duty, rising to 70,000 by 2030, with its 100% surtax still applying beyond that.
Bruegel does not pretend the approach is costless. A quota could be legally questionable under World Trade Organization rules, though the authors see room for flexibility, and it would hand extra profit to Chinese exporters. Any deal, they insist, must be strictly temporary.
Foreign investment, meanwhile, should be welcomed as a chance to catch up rather than restricted. South Korean companies already own 65% of operating battery cell capacity in Europe, and Chinese firms 55% of what is under construction — a reminder that the continent's electric future is being built with global capital, whether Brussels likes it or not.
