The European Union is poised to delay its ambitious ban on the sale of new combustion-engine vehicles, a significant development for automakers struggling to transition to emission-free technologies. The proposed easing of regulations may extend the deadline from the previously set target of 2035, providing a crucial reprieve for the automotive sector.

This potential change comes in response to intense lobbying from major manufacturers such as Stellantis NV and Mercedes-Benz Group AG, who have raised concerns over the risk of substantial fines exceeding €1 billion ($1.2 billion) in the coming years. Countries like Germany, which hosts automotive giants including Volkswagen AG and BMW AG, have also advocated for a revised timeline to alleviate political tensions and mitigate job losses in the industry.

Friedrich Merz, the Chancellor of Germany, expressed the need for a competitive manufacturing sector during a press briefing in Heidelberg with Manfred Weber, the leader of the conservative bloc in the European Parliament. Merz stated, “We will only be able to do something for climate protection if we have a competitive manufacturing sector.”

The decision to reconsider the ban is expected to be announced on Tuesday. While this adjustment may provide temporary relief, experts caution that excessive leniency could hinder technological advancements and widen the gap between European manufacturers and competitors like Tesla Inc. and BYD Co. from China.

“It’s a wake-up call for the industry,” said Jos Delbeke, a professor at the European University Institute and a former senior EU climate official. He emphasized that while some flexibility is necessary, it should be short-term to prevent missing climate targets and falling behind in the technology race.

The proposed adjustments offer an opportunity for European leaders to better align the transition to electric vehicles (EVs) with consumer interests. Previously, the burden of meeting the EU’s EV goals largely rested on producers, while national governments were slow to implement supportive policies. Although the extension may provide time for policy changes, the financial implications of incentivizing electric vehicle purchases remain challenging.

Earlier this year, the EU introduced an action plan aimed at bolstering the industry by making local battery production more cost-competitive. While the bloc intends to collaborate with member states to facilitate effective EV policies, it holds limited authority over local taxation and subsidy frameworks.

The issue of financing the green transition is highly sensitive, particularly in light of rising populism across Europe. This was evident when the EU reached a preliminary climate agreement for 2040 while postponing the introduction of carbon pricing at fuel pumps until 2028. Such pricing could make combustion-engine vehicles more expensive, thereby enhancing the appeal of EVs, but it also risks inciting backlash from voters.

Ingo Ramming, head of carbon markets at Banco Bilbao Vizcaya Argentaria SA in Madrid, noted, “The EU’s climate ambition demands that every sector delivers, yet emissions reductions from road transport are lagging.” He added that the success of the new fuel pricing system would rely heavily on political and social concerns, which are intensified in the current climate.

For manufacturers, this delay presents a temporary window to reassess investment strategies that have been disrupted by rising costs and unpredictable EV demand. Many carmakers have already scaled back battery plant projects, while suppliers, who constitute a significant portion of the industry’s workforce, face mounting pressure as orders for combustion-engine vehicles decline faster than electric vehicle orders increase.

Industry representatives warn that without a transition plan that reflects market realities, thousands of smaller parts manufacturers could face severe challenges, potentially leading to widespread job losses and supply chain disruptions throughout Europe.

Archibald Poty, trade and market affairs manager at CLEPA, the European supplier association, remarked, “Europe’s industrial base is under pressure as electrification and global competition shift value to Asia.” He emphasized that strategic policies are essential to navigate this less favorable business environment.

As pressure mounts from climate-skeptic populist factions, green policies are increasingly viewed as potential threats to economic prosperity. Consequently, governments are prioritizing the protection of traditional manufacturing sectors to avoid escalating political tensions.

Despite these setbacks, environmental commitments remain intact, and the forthcoming months will be critical in determining whether policymakers can achieve a balance that maintains the competitiveness of Europe’s automotive industry while advancing efforts to eliminate net emissions of greenhouse gases by 2050.

For automakers, the additional time granted may not necessarily lead to the job growth they anticipate. Many executives contend that extending the deadline will not address deeper systemic issues, such as high energy costs, slow permitting processes, and insufficient local battery production.

Without advances in these areas, Europe risks merely delaying the inevitable challenges rather than enhancing its position in the global electric vehicle market. Critics express concern that this reprieve could reinforce existing hesitance within the industry. By alleviating immediate pressures, the EU might unintentionally encourage manufacturers to continue relying on profitable conventional technologies instead of accelerating their transition to electric vehicles, potentially jeopardizing the region’s competitiveness as China forges ahead.

Moreover, weaker regulations could enable interim solutions like range extenders and hybrid systems to gain traction. Many essential components for current EV batteries are sourced from China, indicating that any short-term benefits for Europe’s suppliers might be limited. While local-content requirements could provide support, German automakers have opposed such mandates due to concerns over increased costs and bureaucratic complexities.

William Todts, executive director of Transport & Environment, an advocacy organization focused on clean transport policy in Europe, cautioned, “The danger is creating confusion about the direction of travel.” He warned of the significant risk of wasting additional years debating the future landscape of the automotive industry.

As Europe navigates this pivotal moment for its automotive sector, the decisions made in the coming months will be crucial in determining the region’s ability to balance competitiveness with environmental sustainability.