France and Germany reached an agreement that pairs Berlin's bid to dial back EU emissions demands with Paris's call for stricter "Made in Europe" definitions to shore up domestic manufacturing. German Chancellor Friedrich Merz said the effective ban on fuel-burning cars "is history," after the deal was struck.
The accord is framed as breathing room for names like Volkswagen AG, Stellantis NV and Renault SA, and suppliers including Valeo SA. Stefano Aversa, Vice Chair at AlixPartners, said the proposal would "rebalance the competitive disadvantage of European manufacturers in the automotive sector versus Chinese ones, and points to the easing of 2035 goals that clearly couldn't be met."
Auto shares led Friday's gains in Europe, outpacing other sectors on the Stoxx 600. Volkswagen and Stellantis each ended the session 2.8% higher, and BMW advanced 3.5%.
Stellantis called the pact "an important step toward finalizing the European automotive package." The company added, "We believe it can help to bring the process to a rapid conclusion, providing our industry with flexibilities and the clarity it needs."
To keep pace with BYD Co. and the MG brand of SAIC Motor, European automakers have been trimming headcount and closing facilities. At the start of the week, they threw their support behind a proposal to slash by millions the volume of Chinese hybrid vehicles permitted into the EU over a four-year period.
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France and Germany indicated the UK could be eligible for European subsidies under "Made in Europe" - on the condition that Britain also takes steps to protect its auto industry from China. Unlike the EU, the UK currently has neither extra tariffs on Chinese electric vehicles nor an import cap.
Welcoming the deal, Renault Chief Executive Officer Francois Provost urged the UK and EU to "join forces," calling them "one unique ecosystem." He said the UK would need to limit Chinese car imports in order to qualify under Made in Europe, adding, "We cannot have unsustainable inflow of imports in Europe." He did not say whether tariffs are the right tool.
The proposals leave out significant suppliers to the EU, including Japan and Turkey. Earlier Friday, Toyota Motor Co. asked for countries like those to be treated as "trusted partners." Renault brand CEO Fabrice Cambolive said the company needs to review the details before gauging what the agreement means for its operations in Morocco and Turkey.
In plain English: the deal signals a shift toward looser CO2 rules alongside tighter origin standards, and an expert said it points to easing 2035 targets. That mix already lifted auto stocks and could influence how European brands compete with Chinese automakers, how the UK plugs into EU subsidies, and how supply chains connected to Morocco and Turkey are positioned.
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