Europeans are anxious! The EU proposes to "loosen" the new emission regulations for domestic car manufacturers, and automotive stocks rise in response

On Monday, European Commission President Ursula von der Leyen stated that car manufacturers would be given three years to meet carbon emission targets. This statement has provided a long-awaited breather for European automakers and injected a shot of adrenaline into the sluggish European automotive market.

As a result of this news, European stock markets rose sharply, with the automotive sector performing particularly well, as the automotive stock index expanded its gains to 2.3%, and Volkswagen's European shares rose nearly 5%.

Von der Leyen stated at a press conference on Monday:

The European Commission will propose to amend the penalty scheme for car manufacturers that fail to meet the 2025 carbon dioxide emission targets for cars and trucks, allowing them to achieve the targets based on vehicle emissions over a three-year period.

This means that car manufacturers do not have to immediately meet the stringent emission standards this year, as long as they achieve excess reductions in the next two years. It is important to note that this amendment still requires approval from EU member states and the European Parliament.

This amendment targeting the automotive industry will be proposed later this month. Von der Leyen emphasized:

This does not change the agreed-upon reduction targets but provides the industry with more breathing space and clearer guidance. Companies will have three years to flexibly 'store' and 'borrow' emission allowances, rather than having to meet standards every year.

European automakers are under significant pressure, having long called for a revision of the 2025 emission targets. The unexpected decline in electric vehicle sales last year has made it more difficult for manufacturers to meet reduction targets, potentially facing billions of euros in fines.

Although manufacturers can mitigate some penalties by engaging in emission allowance "pooling" transactions with other manufacturers that are transitioning to electric vehicles more quickly (such as Tesla, led by Elon Musk), industry insiders are concerned that this may unduly benefit companies like Tesla.

While the EU's move provides some breathing space for car manufacturers, reactions have been mixed. Volkswagen Group previously warned that due to emission regulations, the company could face losses of €1.5 billion (approximately $1.6 billion). However, companies like Volvo have called on the European Commission to stick to its original targets to ensure regulatory certainty for those that have already invested heavily in new technologies