Don't punish the pioneers: Winning the automotive innovation race requires credible political commitment. EMPOCI policy briefing, Issue 2, May 2026

The European Union in 2023 committed to phasing out the sale of new petrol and diesel cars and vans by 2035, but is currently debating to relax this phase-out policy.

New survey insights with managers in the German automotive industry suggest that watering down the phase-out policy would penalize highly innovative companies – both SMEs and large firms – that have already heavily invested in the orientation of their automotive business activities towards e-mobility. Weakening the phase-out policy would in effect punish precisely the firms that are best positioned to compete in the global innovation race towards net-zero technologies.

These fast transformers prefer the maintenance of the so-called sales ban for internal combustion engine (ICE) vehicles by 2035 and support the EU’s CO₂ emission performance standards. In addition, they see the introduction of stronger policies supporting demand for electric vehicles as key for successfully transforming the automotive industry, for instance through EU targets for clean corporate fleets.

This policy brief showcases that Germany’s automotive industry is at a crossroads, and offers policy implications for navigating its split industry into a competitive future.

Key Messages: 

1. The EU phase-out policies have been effective. The European CO₂ emission performance standards – culminating in the ICE sales ban by 2035 – are the key policy driver for the transformation of the German automotive industry.

2. Policy mix credibility is essential for a successful transformation. Perceptions of weakening political commitments towards e-mobility make phase-out policies less effective.

3. Germany’s automotive industry is divided, expressing competing policy preferences. Fast transformers want to maintain the CO₂ emission performance standards towards zero by 2035, while slow transformers prefer to end it.

4. Sustained policy ambition is critical for safeguarding innovation leadership. Securing competitiveness in future markets requires an ambitious policy mix that sustains and scales up the emerging momentum – otherwise Germany risks failing to attain a leading position in the global innovation race towards e-mobility.