The Paris-Berlin Ledger: How Engine Flexibility for 2035 Was Traded for Made-in-Europe Car Content

by Francis Rozange | Nov 2, 2026 | 0 comments

The document that Berlin published on Friday 16 October 2026, press release number 185 of the Federal Government, runs to a few short paragraphs and contains no numbers at all. France and Germany, it says, have agreed on a common approach to secure the future of the European car industry, one that keeps the climate targets and makes sure that the cars of the future are built in Europe. The two governments promise a substantial cut in carbon dioxide emissions, regulatory flexibility for different markets and technologies, and incentives for European production and resilient supply chains. The figures came separately, from French presidential sources briefing reporters on the margins of the European Council in Brussels.

Those figures describe a bargain. Germany obtains a softer end to the combustion engine: carmakers would have to cut the average emissions of new cars by 90 percent by 2035 without compensating for the remaining 10 percent. France obtains a “Made in Europe” rule with numbers attached: 70 percent of a vehicle’s components, excluding the battery, and 10 percent of battery content would have to qualify as European for a car to benefit from public money. A week earlier, in Beijing, the European Commission had reached a separate understanding with China on hybrid imports. Together the three files redraw the economics of building and selling cars in Europe, but none of them is yet law.

A joint position that binds no one else yet

The legal status of the Franco-German text needs stating plainly. It is a joint national position of two member states, announced on 16 October after the compromise had been reported the previous day by a French news agency citing diplomatic sources. It binds nobody else. It is meant to be written into two pieces of European legislation that are still under negotiation: the revision of the CO2 standards for cars and vans proposed by the Commission on 16 December 2025, and the Industrial Accelerator Act proposed on 4 March 2026, which carries the Union origin rules. Both follow the ordinary legislative procedure, which means that the European Parliament and the Council of the EU must each adopt a position and then agree on a common text.

What the Franco-German deal changes is the arithmetic inside the Council. For months France had sided with the member states that opposed diluting the 2035 target beyond what the Commission had proposed. According to German press reports summarised by Clean Energy Wire on 7 October, France formed a blocking minority with Sweden, Spain, Denmark, Luxembourg, the Netherlands and Portugal, and those reports said that a French change of side would probably deliver the necessary majority. Under the treaties, a qualified majority requires at least 15 member states representing at least 65 percent of the Union’s population. Paris and Berlin together do not make a majority, but their alignment makes one far easier to assemble.

How the ninety percent target lost its offset

To see what moved, start with the Commission’s proposal of December 2025. It replaced the 100 percent cut in fleet-average tailpipe emissions for 2035, agreed in 2023, with a 90 percent cut. The remaining 10 percent would not simply be forgiven. Manufacturers would have to compensate for it through two mechanisms: credits for low-carbon steel made in the Union and used in their vehicles, capped at 7 percent of the 2021 reference target, and credits for the emissions savings of e-fuels and biofuels placed on the market, capped at 3 percent. The Commission said this would allow plug-in hybrids, range extenders, mild hybrids and conventional combustion cars to keep a role after 2035, alongside battery-electric and hydrogen vehicles.

The Franco-German position keeps the 90 percent figure and drops the compensation. According to the details released by the Élysée, manufacturers would still have to reduce the average emissions of their new cars by 90 percent, but would no longer have to offset the rest. The justification offered, according to the French news agency’s account, is the growing use of renewable fuels, biofuels among them. For a compliance team the difference is large. Under the Commission’s text, every gram above the 90 percent line has to be bought back with steel or fuel credits under a mechanism that is not yet law; under the Franco-German text, that last tenth of the target becomes headroom that can be filled with combustion and hybrid volume.

The eighty percent figure that did not survive

An earlier version of the story deserves a correction. On 7 October, two German newspapers reported, citing unnamed sources and European diplomats, that the Franco-German plan would lower the 2035 target by a further 10 percentage points, to 80 percent below 2021 levels, without compensation, and would give carmakers five years instead of three to reach the 55 percent reduction due for 2030. That account circulated widely. The details briefed by French officials on 15 and 16 October, as reported by Euronews, the French news agency and Toute l’Europe, describe a 90 percent target without offsetting rather than an 80 percent one, and those accounts do not mention a five-year window for 2030.

The gap between the two versions is itself informative. It suggests that the German negotiating position at some point went well beyond what was finally agreed, and that France’s price for accepting any loosening was to hold the headline number where the Commission had placed it. It also shows how cautiously the early reports should be read. Germany’s own coalition is not united on the point: according to Euronews, the Social Democratic environment minister had argued for a 95 percent reduction with the remaining 5 percent offset by low-carbon steel. The Parliament, as described below, is working from yet another number.

Why Paris changed sides

France’s reason for moving is stated in the deal itself. Until October, according to the German reports summarised by Clean Energy Wire, Berlin wanted looser CO2 rules but resisted “Buy European” requirements, while Paris wanted the opposite, and the two governments had blocked each other. The trade was therefore explicit: German support for a European preference in public funding and procurement in exchange for French support on the combustion engine. A source at the Élysée quoted by Euronews described the aim as creating a European preference so that French factories “do not become mere assembly plants”. The German finance minister, Lars Klingbeil, made a similar point from the other side, saying that Germany should not settle for assembling components that come from Asia.

The reactions followed predictable lines. The European association of automotive suppliers, CLEPA, welcomed the compromise, and the French news agency reported that two large European carmakers had welcomed it and hoped for rapid adoption of the automotive package. Transport & Environment, the Brussels campaign group, called it a historic mistake and warned that vehicles assembled in the Union with Chinese batteries could still count as made in Europe. That objection points directly at the 10 percent battery threshold, which is low by any measure. Chancellor Friedrich Merz described the agreement as a good day for drivers and for jobs, while President Emmanuel Macron insisted that the course had not changed.

What the seventy percent threshold measures

The 70 percent figure did not originate in October. The Commission’s Industrial Accelerator Act proposal of 4 March 2026 already contains, in its third annex, specific rules for electric, hybrid electric and fuel cell vehicles. According to an analysis of the proposal by a Dutch law firm, those rules set a Union origin threshold of at least 70 percent of non-battery components, measured by ex-works price. The suppliers’ association CLEPA described the same proposal as mandating vehicle assembly in the Union, applying a 70 percent local content threshold immediately and adding a 50 percent threshold for critical components three years after publication. The European Parliament’s research service lists components, batteries, e-powertrains and electronics among the areas subject to minimum EU-content thresholds.

The Union origin requirements apply to vehicles bought through public procurement, to public support schemes for the purchase and lease of electric, hybrid and fuel cell vehicles, and, through the CO2 regulation, to the “super credits” for small zero-emission cars. Two law firm analyses describe support schemes for these vehicles as fully covered, with derogations where compliance would cause significant delays, presumed above seven months, or disproportionate costs, presumed when the final product would become more than 30 percent more expensive. Manufacturers would certify Union origin when issuing the vehicle’s certificate of conformity. A car that fails the test could still be sold in Europe; it would simply be shut out of subsidies, public fleets and the regulatory bonuses attached to them.

The battery threshold is where the bargain is weakest

The second number in the Franco-German package, 10 percent of battery content, is where the bargain is most exposed. The battery is the part of the value chain where European production depends most on Asian owners. A policy brief published by the Brussels think tank Bruegel on 22 September 2026 states that Chinese companies own 55 percent of the battery cell capacity under construction in Europe, while South Korean companies own 65 percent of the capacity already operating. A threshold set at one tenth of battery content can be met by a pack assembled locally from imported cells, which is the substance of Transport & Environment’s objection.

There is a reason the threshold was set low, and Bruegel’s own figures show it. In an illustrative estimate, the brief calculates that requiring EU-origin battery cells would raise battery costs from 50 to 85 euros per kilowatt-hour, adding roughly 2,100 euros to an electric car with a 60 kilowatt-hour pack, and it notes that such costs fall hardest on entry-level segments. A strict battery rule would therefore collide with the other stated aim of the package, which is to bring affordable small electric cars to market. The Commission’s separate Battery Booster, worth 1.8 billion euros, including 1.5 billion in interest-free loans to European cell producers, is the instrument meant to close that gap over time.

Where Europe ends for the purposes of the rule

The most contested question in the Made in Europe debate is geographic. France, according to Euronews, wanted a strict preference limited to the 27 member states, while Germany wanted a broader approach that would include trusted countries outside the Union. The compromise lets Norway, Iceland, Switzerland and the United Kingdom count as European if they sign agreements with the EU guaranteeing fair access to public contracts and funding and preventing other countries from using them to get around the rules. The French news agency’s account names the United Kingdom, Norway and Switzerland and says the conditions are still to be defined in association agreements.

This is narrower than the Commission’s own draft. According to the Parliament’s research service, the Industrial Accelerator Act would treat content from countries that have a free trade agreement or customs union with the EU as equivalent to Union origin, both in procurement and in other public support, and in procurement it would extend that treatment to parties to the World Trade Organization’s procurement agreement. The Commission could exclude a third country by delegated act. The Franco-German approach turns that default around: partners would have to earn their place through a specific agreement. For a manufacturer building cars or major components just outside the Union, that is the difference between automatic eligibility and a political negotiation.

The legislative calendar runs to the end of the year

The CO2 file, procedure 2025/0420(COD), sits with the Parliament’s environment committee, where the rapporteur appointed on 19 March 2026 is Massimiliano Salini of the European People’s Party. On 28 October, the Parliament’s Legislative Observatory listed the stage reached as “awaiting committee decision” and gave 23 November 2026 as the indicative date for the first-reading plenary sitting. According to the trade site electrive, citing German press, the environment committee was due to vote in early November and the plenary vote was more likely to take place in December. The indicative date in the Observatory and that press report do not match, and the calendar should be treated as provisional.

The Industrial Accelerator Act, procedure 2026/0068(COD), is handled jointly by the international trade, industry and internal market committees, and is also listed as awaiting committee decision, with an indicative plenary date of 14 December 2026. The European Council, in its conclusions of 16 October, named the Industrial Accelerator Act and the automotive simplification packages among the deliverables for 2026 and invited the co-legislators to conclude negotiations on these files, as well as the automotive package, by the end of the year. According to electrive, the Council will vote after the Parliament. An agreement by the end of the year would require the Parliament to vote, the Council to agree its mandate, and both to settle their differences in negotiations within a few weeks.

The Parliament counts differently

The Parliament’s committees have already produced a third version of the 2035 target. On 22 October, the transport and industry committees, which give opinions to the lead environment committee, adopted compromise amendments agreed by the centre-right, socialist and liberal groups. According to Agence Europe, the compromise sets a 2035 target of an 87.5 percent cut in fleet emissions compared with 2021, on condition that the remaining emissions up to 95 percent are offset through low-carbon steel credits. For vans, it would lower the 2030 target from 40 to 35 percent and the 2035 target from 90 to 80 percent. Electrive reported the votes as 49 to 27 with 5 abstentions in the industry committee and 27 to 18 with 1 abstention in the transport committee.

The structures of the two positions differ in kind. The Parliament’s committees accept a lower tailpipe requirement but insist on steel compensation; the Franco-German line keeps a higher tailpipe requirement but abolishes compensation. A manufacturer cannot plan around both. The Parliament also links the files procedurally: Agence Europe reported that agreement on the automotive element of the Industrial Accelerator Act is needed before the plenary can vote on the car CO2 standards, and that the industry committee’s vote on the Act is expected in December. The 2035 rule and the Made in Europe rule are therefore likely to be settled together, which is the linkage Paris and Berlin wanted.

What was agreed in Beijing

The third file was agreed far from Brussels. On 8 and 9 October 2026, the Commission’s trade commissioner, Maroš Šefčovič, and China’s commerce minister, Wang Wentao, held the second meeting of the EU-China Trade and Investment Consultations in Beijing. Their joint statement, published by the Commission, contains one sentence on cars: following intensive consultations, both sides “have reached an understanding on trade in hybrid vehicles in a WTO compliant manner”. The statement also records that procedures on company price undertakings and reviews will continue in the anti-subsidy case on battery-electric vehicles, in which the Commission imposed definitive duties of between 7.8 and 35.3 percent in October 2024.

His press remarks went further. He said the two sides had reached “a shared understanding to moderate China’s exports of hybrids and plug-in hybrids to the EU” and that this “opens the prospect of cutting China’s exports by more than a half”. He added that Commission President Ursula von der Leyen would assess the outcomes with leaders at the European Council, “where the final decision lies”. The conclusions that leaders adopted on 16 October do not mention China, and their only references to hybrids concern hybrid threats such as sabotage. They record that the European Council took stock of global macroeconomic imbalances and invite the Commission to make effective use of the EU’s instruments and to enhance its toolbox. On 28 October, the most recent item on the Commission’s trade policy news page was dated 14 October, and no implementing measure on hybrids had been published there.

Where the 350,000 figure comes from

The number that circulated after the Beijing meeting, 350,000 vehicles a year, does not appear in any official text. It comes from a draft document reported by the financial press on 11 October and relayed by the Korean broadcaster SBS and the trade publication Just Auto, among others. According to those accounts, the draft describes a safeguard measure that could take effect from 1 December, with a ceiling of 350,000 units in the first year, rising by 6 percent a year from the second year, for four years. To respect the World Trade Organization’s principle of non-discrimination, the cap would cover hybrid and plug-in hybrid imports from all origins, including countries with which the EU has free trade agreements, and China’s allocation would be no smaller than that of any other supplier.

The accounts differ on whether 350,000 is China’s share or the ceiling for all hybrid imports, and the baseline is disputed in public. On 12 October China’s commerce ministry stated that, according to Eurostat, the EU imported 107,000 hybrid vehicles from China in 2024 and 302,000 in 2025, and that the two sides had agreed an “upward arrangement” from the 2025 base that ensures room for Chinese exporters to grow. A ceiling of 350,000 would be about 16 percent above that 2025 figure. The commissioner gave no baseline for his “more than a half”. A senior EU official quoted by the Swiss news agency ATS on 12 October supplied one: Chinese hybrid exports to the EU were expected to reach 800,000 vehicles in 2026, a level that a ceiling of 350,000 would cut by about 56 percent. The ministry also reserved China’s right to seek compensation or dispute settlement at the WTO.

Why assembly inside the Union changes the arithmetic

Vehicles assembled in the Union are sometimes described as exempt from the hybrid cap. That is true, but only in the trivial sense that a safeguard is a border measure: a car built inside the Union is not an import and cannot be counted against an import quota. The point worth drawing out is how the two instruments interact. A Chinese manufacturer facing a ceiling on imported hybrids has an obvious incentive to assemble in Europe. Once it does, the import quota no longer applies, but the Made in Europe test does, and with it the question of whether the vehicle qualifies for subsidies, public fleets and super credits. The quota pushes production inside; the content rule decides how much of the value chain has to follow.

For European competitors, this is the strategic core of the package. A plant that assembles imported kits would escape the hybrid ceiling but would fail the 70 percent component test and would compete without public support. A plant that sources most components locally would pass, which is the outcome the content rule is designed to produce. Bruegel lists among recent Chinese investments in Europe a 4 billion euro vehicle assembly plant in Hungary and battery cell plants in Hungary and Portugal. Whether such sites become full manufacturing operations or remain final assembly points is the question behind the Élysée’s phrase about “mere assembly plants”.

The hybrid market the measure lands on

The timing of the hybrid measure reflects a market shift that the 2024 duties helped create. Those duties covered battery-electric cars only, which left Chinese exporters free to redirect volume towards plug-in and full hybrids. The European Commission’s Joint Research Centre noted in a 2026 policy brief that the total share of Chinese vehicles in new EU car registrations was still below 5 percent, but that tariffs on Chinese battery-electric cars at the end of 2024 had slowed their sales growth relative to plug-in hybrids and combustion cars. Bruegel’s September brief states that Chinese-built electric vehicles passed 20 percent of EU electric vehicle sales in 2026, equivalent to more than 5 percent of all vehicle sales.

The hybrid segment is now the centre of the European market. According to the European Automobile Manufacturers’ Association, hybrid-electric cars without a plug took 36.3 percent of new EU registrations between January and September 2026, with 3,090,530 units, making them the most popular powertrain. Battery-electric cars took 22.7 percent and plug-in hybrids 10.1 percent, with 860,257 units, while the combined share of petrol and diesel cars fell to 28.2 percent from 36.9 percent a year earlier. A cap on imported hybrids therefore protects the largest segment of the market, and a softer 2035 target keeps that segment legal beyond 2035.

What product planners now have to model

For a manufacturer’s product planning department, the combined effect is a wider set of legal powertrain options after 2035 and a narrower set of profitable sourcing options before then. If the Franco-German line prevails, a fleet averaging a 90 percent cut could include a meaningful share of plug-in hybrids and efficient combustion cars after 2035 without any purchase of steel or fuel credits. If the Parliament’s line prevails, that headroom shrinks to 87.5 percent and requires a steel supply chain that can certify low-carbon content. The 2030 milestone also remains in play: the Commission proposed averaging compliance over 2030 to 2032, and none of the published accounts of the final Franco-German text describes a different window.

The incentives at the small end of the range are shifting too. The Commission proposed that small affordable electric cars made in the EU, defined in its omnibus proposal as up to 4.2 metres in length, would count as 1.3 vehicles for CO2 compliance until 2034. The Franco-German position, according to the French news agency, would extend super credits to larger electric cars, which would reduce the specific advantage the Commission wanted to give the small segment. Paris and Berlin also asked to soften the Commission’s corporate fleet proposal, which sets national targets from 2030 for zero and low-emission vehicles among large companies’ registrations, by allowing some low-emission combustion vehicles. Corporate registrations account for around 60 percent of EU car registrations, according to the Commission’s questions and answers.

Suppliers carry the content test

The content thresholds will be felt first by the supply base, because that is where the 70 percent is calculated. CLEPA commissioned a consultancy to test whether European suppliers could meet it and posted a summary in July 2026. The association’s summary states that a representative C-segment car built in the EU currently has an average European content of around 82 percent for plug-in hybrids and 75 percent for battery-electric cars, and that up to 89 and 83 percent respectively could be sourced in Europe. The lower battery-electric figure, according to the same document, reflects the larger share of specialised electronics and powertrain parts imported from abroad. These are an industry association’s figures, published in support of its position, and they describe an average.

The averages hide the stress points. The summary does not say whether its percentages exclude the battery, as the legal threshold does, but if the two measures are comparable, a battery-electric car at 75 percent sits only five points above the line, and a single sourcing decision on an inverter, a motor or a control unit could move it. CLEPA’s summary notes that origin would follow the EU’s non-preferential rules, under which a component qualifies only if it undergoes its last substantial transformation in Europe, judged by criteria such as a change in tariff classification or 45 percent European value added. A first-tier supplier that merely assembles imported subcomponents cannot claim European origin. For suppliers deciding where to place their next electronics or e-motor line, the threshold turns a cost comparison into a question of eligibility, and competitive research on rivals’ footprints becomes as relevant as research on their prices.

What a preference costs

The economic risk of local content rules is that they raise the cost of the very cars they are meant to promote. Bruegel’s brief argues that the Union is trying to meet three conflicting goals at once: keeping the combustion phase-out, shielding domestic supply chains from Chinese imports and keeping cars affordable. It recommends resilience criteria rather than local content rules and a negotiated sectoral arrangement with China backed by safeguards. It also reports that France and Spain are the only member states applying Made in EU criteria to consumer subsidies for electric cars, and that in France models excluded from subsidies saw sales around 60 percent lower relative to eligible models, with total electric penetration possibly reduced by 0.9 percent.

The Commission frames the trade-off differently. Its December 2025 questions and answers note that EU car production has fallen by 3 million units and small car sales by 1.6 million over the past six years, and present EU-made small electric cars as the way to revive both. Bruegel puts the fall in production since 2019 at about 2.6 million units, or 19 percent; the two figures cover slightly different periods and are within the same order of magnitude. Whether the preference works as industrial policy or as a cost borne by buyers will depend on details still open: the battery threshold, the list of partners and the use member states make of the derogations.

What buyers will be told at the point of sale

One element of the December 2025 package has received less attention than it deserves. The Commission’s revision of the car labelling rules would give buyers information on fuel efficiency and CO2 emissions and on whether the car is made in the EU. That converts the Made in Europe test from an administrative criterion for subsidies into a piece of information printed at the point of sale. How much weight European buyers attach to origin when it sits beside price, range and running costs is not known, and the answer is likely to vary by country and segment. The evidence from France’s subsidy reform suggests that eligibility matters greatly when money is attached; whether origin matters on its own is a separate question.

That question can be answered before the rules take effect. Customer research of the kind CSM International carries out in automotive research, combining conjoint trade-off exercises with qualitative interviews, would show how far a buyer will accept a higher price or a shorter range for a car labelled as made in the EU, and whether that willingness differs between private buyers, company car drivers and fleet managers. Content analysis of how origin is presented in advertising and dealer communication would show whether manufacturers already treat it as a selling point. For a manufacturer deciding whether to localise a model, the answer bears directly on the business case, because the subsidy and the label reach different parts of the market.

The dates that will settle it

Several deadlines will determine how much of the October bargain survives. In the Parliament, the environment committee’s vote on the CO2 file and the plenary that follows will show whether the 87.5 percent compromise holds or moves towards the Franco-German 90 percent without offset. In the Council, the test is whether a qualified majority now forms behind the Franco-German line, and whether the other members of the former blocking minority follow France. On the Industrial Accelerator Act, the committee votes expected in December and the indicative plenary of 14 December will fix the Parliament’s view on the 70 percent threshold, the battery rule and the treatment of partner countries.

On trade, the decisive document will be the legal act that turns the Beijing understanding into a measure, if the Commission publishes one, because only that text will settle the ceiling, the baseline, the allocation by country and the start date that are now known only from a reported draft. The two sides have agreed to hold a ministerial video conference in January and the third ministerial meeting of the Trade and Investment Consultations in March 2027. Until then, manufacturers face a set of provisional rules that depend on one another. The European Council asked for the automotive files to be concluded by the end of 2026. As of 28 October, neither the Parliament nor the Council had adopted its position on either file.