The ability to purchase credits has sparked concern, particularly in France and Germany, as demand for electric cars weakens, threatening factory closures and job losses. As European automakers face pressure from President Donald Trump’s trade threats, they are also grappling with the potential financial impact of stricter EU emissions rules. Starting this year, carmakers must meet tough carbon reduction targets, or face hefty penalties. With electric car demand in Europe declining and competition from Chinese manufacturers increasing, industry groups are pushing for relief.
At a summit in Brussels, Ursula Von Der Leyen, president of the European Commission, acknowledged the challenges and assured that regulators were responding swiftly. Automakers can meet emissions targets by producing more zero-emissions vehicles or by reducing combustion engine output. Alternatively, they can buy emissions credits from companies that produce only electric cars, such as Tesla and China’s Geely, which owns Volvo and Polestar.
The ability to purchase credits has sparked concern, particularly in France and Germany, as demand for electric cars weakens, threatening factory closures and job losses. The situation is compounded by Tesla CEO Elon Musk’s criticism of EU tariffs on Chinese electric vehicles and his political involvement. France’s minister for European affairs, Benjamin Haddad, warned that such a situation could harm European political interests.
New EU regulations also require that 25% of cars produced this year be electric. Major European automakers, including Mercedes-Benz, Volkswagen, and Stellantis, are struggling to meet these targets. Stellantis already purchased USD 2 billion in credits from Tesla between 2019 and 2021, but fines could exceed USD 15 billion for the industry, with Volkswagen estimating up to USD 1.6 billion in penalties.
Tesla, meanwhile, benefits significantly from carbon credit sales. In 2023, the company earned USD 1.79 billion from credits, and its income from such sales more than doubled to USD 2.8 billion last year. European automakers also face challenges from U.S. policies under Trump, who has rolled back regulations and threatened tariffs. The European auto industry, employing 13 million people, saw a 6% drop in electric car registrations in 2024, while Chinese manufacturers’ market share grew by 45%.
European executives argue that the ambitious targets set under the 2020 Green Deal did not account for disruptions like the pandemic and the energy crisis. Mercedes-Benz’s Ola Källenius called for a more flexible approach to the decarbonization process, aiming for a balance between environmental goals and profitability. Despite these challenges, EU regulators remain committed to cutting emissions by 55% by 2030, with a ban on new gas vehicles by 2035.
