France and Germany strike deal to boost Europe's struggling car industry

France and Germany agreed on a provisional plan to protect Europe’s automobile industry while cutting carbon emissions. It aims to support the development and manufacture of electric cars in Europe. The deal also seeks stronger investment, research, European production, and resilient supply chains.

The agreement would set the 2035 emissions reduction target at 90 percent from 2021 levels, without requiring additional compensatory measures. It could also allow cars using renewable fuels to count as zero-emission vehicles. The plan would broaden "Made in EU" rules to include certain European partners, including the United Kingdom.

The agreement is not law yet. Other EU countries and the European Parliament must support it. However, it is expected to influence future European policy as carmakers face growing competition from Chinese electric and hybrid vehicles. France and Germany hope their compromise will lead to a wider European agreement.

The "Made in EU" label is a proposed standard for the automotive sector covering vehicles made within the EU and certain European partners. It matters because the label is linked to a public procurement scheme. Eligible vehicles could receive recognition or advantages when public authorities buy cars, while manufacturers gain clearer rules about European production.

France wanted the scheme limited to EU member states. Germany supported a broader interpretation that included important non-EU partners. The compromise would cover the EU’s 27 members and other European countries that belonged to the EU internal market on January 1, 2020. That definition could include the United Kingdom.

The label has not been finalized. It requires European consensus and may depend on full reciprocity, alignment with EU investment conditions, and EU trade-protection measures. For carmakers, those conditions could affect market access, production decisions, and competition with Chinese vehicles.

Chinese electric and hybrid cars are becoming a major presence in Europe. They accounted for 10.7 percent of the European market in the second quarter of 2026, according to Schmidt Automotive Research. That gives Chinese manufacturers a significant and rapidly growing share of vehicle sales.

The increase is especially striking because the figure was 5.7 percent in the second quarter of 2025. In one year, the reported share rose by five percentage points and came close to doubling. The article links this growth to Chinese manufacturers increasingly targeting Europe with electric and hybrid models.

The pressure is likely to shape European policy. Chinese companies face barriers to selling in the United States and weaker demand in China, so Europe has become more important to them. France and Germany are responding with investment incentives, production support, and possible changes to emissions and sourcing rules.

European carmakers are struggling because Chinese manufacturers are becoming stronger competitors in the region’s fastest-changing vehicle segments. Chinese electric and hybrid cars held 10.7 percent of the European market in the second quarter of 2026, up from 5.7 percent a year earlier. That growth is putting direct pressure on European producers.

The article gives two reasons Chinese companies are focusing on Europe. They face barriers to selling in the United States, and demand in their home market is weaker. Europe therefore offers an important alternative market. Chinese manufacturers are increasingly targeting European buyers as a result.

European governments are responding by trying to make local production more attractive. The Franco-German agreement proposes incentives for investment, research, European manufacturing, and resilient supply chains. It also seeks rules that protect climate goals while making it easier for European carmakers to compete.

The proposed change would reduce the difficulty of meeting Europe’s 2035 emissions rules. The European Commission had proposed cutting car CO2 emissions by 90 percent from 2021 levels, then closing the gap to 100 percent through low-carbon steel and alternative fuels. The Franco-German plan would stop at 90 percent without those extra measures.

That would give manufacturers more flexibility in how they meet the target. The agreement would also allow cars running on renewable fuels to count as zero-emission vehicles. Together, these provisions could make it easier for automakers to reach their required CO2 levels, which broadly matches the wishes of German car manufacturers.

The change would still need broader European approval. Other EU states and the European Parliament must back the agreement before it becomes law. The plan aims to support investment and jobs while maintaining Europe’s climate ambition, but its final rules could change during negotiations.

The United Kingdom may be included because the proposed automotive definition looks at past participation in the EU internal market. It would cover the EU’s 27 countries and other European partners that were part of that market on January 1, 2020. The UK left the EU single market on January 31, 2020, so it fits that proposed date-based criterion.

This approach reflects Germany’s wish for a broad "Made in EU" interpretation that includes important non-EU partners. France had preferred to keep the public procurement scheme within EU member states. The compromise creates a possible route for the UK while preserving conditions on its participation.

Inclusion is not automatic. The proposal says the UK would need full reciprocity, dynamic alignment with EU investment conditions for third countries, and EU trade-protection measures. Those measures could include limits on Chinese-built hybrid and battery electric vehicles. European consensus is still required.

An electric vehicle uses electric motors and batteries rather than relying only on a conventional combustion engine. Renewable fuels are fuels made from renewable sources, and resilient supply chains are supplier networks designed to keep working when disruptions occur. The article does not provide technical definitions, but these are the standard meanings of the terms.

They matter because Europe is trying to transform carmaking while reducing carbon emissions. The Franco-German plan supports electric-car development and production, encourages research, and offers incentives for European manufacturing. It also promotes resilient supply chains so companies can maintain access to important parts and materials.

The agreement would make renewable fuels especially relevant by allowing cars that use them to count as zero-emission vehicles. At the same time, stronger European production and supply networks could help local manufacturers compete with Chinese electric and hybrid cars. The plan still needs approval from other EU states and Parliament.