EU plans subsidy for EV car sales to counter China

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Brussels has promised to help Europe’s embattled car industry potentially by using pan-EU subsidies to boost demand for electric vehicles.

Teresa Ribera, executive vice-president of the European Commission, told the Financial Times at the World Economic Forum in Davos that officials were still “shaping” options for an incentive programme.

“It makes sense to see how we could figure out in a pan-European perspective, how to facilitate the measures instead of going through national subsidies,” Ribera said. She warned against a “race where we could be confronting one national model versus another one”.

German Chancellor Olaf Scholz on Tuesday divulged that the commission was considering an EU subsidy programme that he had proposed. The German government scrapped its own scheme abruptly in 2023, leading to a plunge in EV sales.

Many EU member states offer incentives for EVs, but the terms vary widely and several member states offer no purchase subsidies at all, according to the European Automobile Manufacturers’ Association.

One challenge for Brussels would be designing a scheme that would conform with WTO rules while avoiding the subsidies flowing to Chinese carmakers, whose share of the market is fast growing.

Ribera admitted there was a “complicated balance” to be struck between rapid electrification and “a mismatch with the capacity of the European brands to provide in terms of quantity and quality what we would like to see moving on our roads”.

The commissioner, who is responsible for the EU’s “green industry” strategy, said a possible incentive scheme would be one of several measures to support a sector deemed vital for Europe’s economy. Europe’s carmakers “needed a comprehensive view on how to update their capacities and to catch up in what is already being demanded worldwide,” Ribera said. By contrast, US President Donald Trump vowed this week to end “unfair subsidies” for EVs.

Ribera, a socialist and former deputy prime minister of Spain, ruled out delaying the 2035 deadline for ending new sales of internal combustion engines because the car industry wanted “predictability and clarity”.

“It doesn’t make sense to open again the discussion when that provides some certainty and would punish the first movers that took it seriously without any potential advantages to those that still need to move,” she said.

But she said she was open to flexibility on the annual EV sales targets and the fines carmakers face for missing them. Ribera said there was an “open conversation” with carmakers about alternative commitments they could make in terms of investment.

Carmakers have complained that paying fines will only hamper their EV investment plans while buying credits from Chinese EV makers helps Chinese competitors.

Ribera said it was important to “ensure that this legislation is being applied in such a way that facilitates what is the main goal” of phasing out petrol and diesel engines.

She also said she was open to extending technology transfer requirements for foreign carmakers who wish to establish manufacturing facilities inside the EU. Brussels said last year it would require foreign companies that received EU grants for battery development to share some technology with local partners.

There is a “good lesson to be drawn” from China, which set strict joint venture and tech-sharing requirements when European carmakers set up factories there 30 years ago.

Beyond the car sector, Ribera said she was willing to broaden the available measures the commission could take to benefit European industry.

Ribera said she would look at local content requirements to shield European turbine manufacturers which are facing fierce competition from Chinese companies.

Shares in European wind turbine makers took a battering from Trump’s first policy announcements, including suspending new offshore project leasing.

Ribera insisted the EU would stay the course on decarbonisation, despite Trump’s move to abandon the 2015 Paris agreement on emissions reductions, of which she was one of the architects.

The devastating fires in Los Angeles showed that the US was already suffering the effects of climate change at great cost, she said.

“The world is much larger [than the US] and there are many other partners and players that do understand why it is important to remain united,” she said.