Europe must change if it wants to be green and competitive.

This article by Ola Källenius first appeared on The Economist  and was made available to us with the kind permission of the editors.

THE EUROPEAN GREEN DEAL was supposed to become Europe’s “man on the moon” moment. It aims for a climate-neutral continent by 2050, to reconcile the challenge of maintaining a competitive economy with the needs of our planet. Now, we must avoid getting lost in space.

The European automotive industry has made a Herculean effort to make the green deal a success and remains fully committed to the shift towards zero-emission transport and mobility. Together, we have launched hundreds of new electric-vehicle models and invested more than €250bn ($290bn) towards the green transition by 2030.

But many consumers remain cautious. Currently, battery electric cars have a market share of roughly 15% in the EU—significantly less than most forecasts predicted only a few years ago. The EU’s short-term fix—averaging CO₂ targets between 2025 and 2027—offers some breathing space. But the economic environment has deteriorated significantly, and unless the conditions improve that trajectory won’t change.

Instead, there is the risk that the de facto ban on combustion engines could lead to the “Havana effect”. Consumers who are not yet ready for e-mobility could be forced to hold on to older, dirtier vehicles for longer—just like Cuban car owners who have long lacked access to new vehicles. Today, cars in the EU are on average more than 12 years old, and the number will continue to increase with the current regulations in place. This will have negative consequences for the climate, employment, prosperity and the entire automotive ecosystem, compounding problems for an industry that is already struggling: over 40% of European suppliers of automotive components and technology could be unprofitable in 2025. That’s why we want to work with policymakers to find solutions.

Europe’s transformation plan for the auto industry must move beyond idealism to acknowledge current industrial and geopolitical realities. We need a course correction in three dimensions: decarbonisation, supply-chain resilience and competitiveness. None of these are optional.

The current penalties-based regulations for CO₂ emissions from cars and vans are stifling economic growth. They need to be revised before the end of the year to reflect what industry and markets desperately need: flexibility and a more market-based approach. That could also help to increase our global competitiveness.

The EU should ensure long-term market access for all technologies contributing to decarbonisation. Electric mobility will lead the charge. And we should support the ramp-up by all means—especially with better charging infrastructure and lower electricity prices. But there must also be room for hybrids, range extenders, highly efficient internal-combustion-engine (ICE) vehicles and decarbonised fuels. China is proving that an approach based on multiple technologies can accelerate progress. Why don’t we play by similar rules?

The EU’s decarbonisation strategy fails to adequately address the reality of the existing European car fleet: only around 2% of it is made up of new BEVs, whereas over 250m ICE vehicles remain on the roads. Further incentives to speed up fleet renewal would be helpful. The same holds true for the targeted use of decarbonised fuels. And we need to bring other mobility and transport players, such as the mineral-oil industry, on board. These points must be discussed in the upcoming strategy dialogue between the European Commission and our industry. Europe’s carmakers are ready to engage constructively.

Strengthening resilience needs to be part of the conversation. Asian companies dominate battery technology and production. Increasing Europe’s independence by building a competitive domestic battery value chain will take many years. Meanwhile, we must focus on strengthening and diversifying supply chains. We also need to secure access to critical raw materials and refining capacities through global partnerships.

A new era of protectionism has dealt our industry an additional blow. Regardless of the result of the trade negotiations between America and the EU, the European automotive industry will, in the short term at least, be worse off. Higher trade barriers reduce our means to invest in the green transformation and slow us down further—just as our global rivals are accelerating.

This makes it even more important for Europe to boost its own competitiveness and to finally complete the European single market, including the capital-markets union. The recommendations of the Draghi Report on EU competitiveness—produced last year by a former Italian prime minister and head of the European Central Bank, Mario Draghi—must be turned into actions.

Regulatory simplification is just as important. In the next few years our industry faces more than 100 new implementation acts—measures adopted by the European Commission to ensure EU laws are uniformly applied. It is time to develop an “Automotive Omnibus”: a more focused version of the EU Omnibus, which was designed to simplify the bloc’s thicket of regulations. This should set a more realistic pace of regulatory compliance and reduce reporting requirements.

The next 12 months will be decisive: either Europe adapts to today’s realities or it risks sacrificing its industrial leadership for over-regulation and stagnation. The goal—a decarbonised and globally competitive European auto industry—is within reach. We believe that through this wide array of measures decarbonisation within the EU can be achieved by taking a better path to green. Brussels, let’s fix the problem.

© The Economist Group Limited, London (July 2025)