Europe's Car Industry: Manufactured crisis - SOMO

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Illustration by: Maximo Tuja for SOMO, 2025.

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Manufactured crisis

Manufactured crisis

Europe’s car industry hoards funds and delays climate action

Posted in category:

Long read

Written by:

Written by:

Jeroen Merk

Written by:

Alejandro González

Written by:

Rodrigo Fernandez

Written by:

Boris Schellekens

Published on:

26 June 2025

reading time 10 minutes

Despite claims of crisis, Europe’s car industry remains profitable, powerful, and politically influential. Yet EU industrial policy continues to prioritise carmakers with subsidies and lenient regulations, undermining climate goals and delaying a fair transition to sustainable mobility. Drawing on an analysis of financial data covering the period 2006–2023, this long-read reveals how the interests of the car industry have steered EU policy to prioritise profits over people and the planet, while alternative, low-carbon, and low-resource-intensive transport options remain underfunded and overlooked.

Key findings

Europe’s carmakers are thriving, with record profits and ample reserves. Yet, they invest less than competitors and have long used their political influence to defend the combustion-engine model and delay the transition.

EU industrial policies favour large, polluting vehicles through subsidies, weak CO₂ targets, and deregulation.

Mobility alternatives are ignored as public funds continue to prop up car dependency, while affordable, low-emission transport solutions like public transit and cycling remain under-supported

In Brussels and across much of Europe, a dominant narrative has taken hold: that the continent’s automotive sector is in a deep crisis and requires state support to transition to clean mobility. Job losses loom, factories face closure, and Chinese competition threatens European dominance. Initiatives such as the Antwerp Declaration, the Letta and Draghi reports, and the Clean Industrial Deal underscore the pressing need to bolster Europe’s industrial base, particularly its automotive sector.

In March 2025, the European Union (EU) industry chief, Stéphane Séjourné, warned that European carmakers are in “mortal danger” as the EU launched an Industrial Action Plan to enhance the competitiveness of the European automotive sector. The plan includes direct public finance for battery producers, most notably through the €1.8 billion Battery Booster and an additional €1 billion allocated for digitalisation and battery research and development under Horizon Europe. Such financial support could be combined with state aid, and for this, the European Commission has just adopted(opens in new window)<br>a new Clean Industrial State Aid Framework (CISAF). The CISAF simplifies EU rules on state aid for developing clean tech manufacturing, including electric vehicle batteries, battery components, and the production of the necessary critical raw materials. In this framework, Member States are strongly encouraged to attach conditions to State aid to support broader social and environmental policy goals. Member States are also encouraged to develop such conditionalities in collaboration with social partners.

However, if we look beyond the headlines, a different story emerges – one of a lucrative car industry using the language of crisis to request financial support, while for decades it has actively blocked the desperately needed shift towards a low-carbon transport system.

Our analysis shows that European carmakers continue to maintain their global market share and profits; however, vested interests in combustion engines have long hindered bold electrification efforts. The real crisis lies not in the industry’s finances, but in the unwillingness of both automakers and EU regulators to pursue a genuine transformation that markedly reduces the greenhouse gas emissions and resource use at the core of the multiple crises the world faces.

For two decades, Europe’s auto giants have actively steered the so-called “green” agenda to serve their interests. Through well-funded lobbying and close ties to policymakers, they have weakened environmental regulations to protect their business models and delayed climate action, while presenting themselves as champions of “green” innovation.

Bowing to pressure from the auto industry, the European Commission has recently weakened(opens in new window)<br>CO₂ emissions rules. Instead of enforcing strict annual targets, the new policy allows manufacturers to average their emissions over the 2025–2027 period, effectively reducing accountability and giving carmakers more room to delay meaningful climate action. While the European Commission maintains its commitment to phasing out new petrol and diesel cars by 2035, industry groups and aligned politicians continue to question the deadline.

The economic logic underpinning EU policy is clear: shield incumbents through subsidies, transitional buffers, tariffs, and...