On 16 December 2025, the European Commission presented the Automotive Package (the “Package”), a set of interlinked legislative and policy initiatives aimed at supporting the European automotive sector’s transition to clean mobility. The Package has four core components: (i) a proposal to revise the CO₂ emission performance standards for cars and vans, (ii) the so-called “Battery Booster Strategy”, (iii) a proposal on greening corporate vehicle fleets, and (iv) a proposal for an “Automotive Omnibus” regulation that would amend several pieces of automotive legislation to simplify regulations for vehicle manufacturers. Together, these initiatives signal a material recalibration of the EU’s approach to vehicle decarbonization.
I. Content of the Package
A. Revision of the CO₂ Emission Performance Standards: Rolling Back the ICE Ban and Changes to Carbon Pooling Rules
The proposed revision of Regulation (EU) 2019/631 represents the most consequential element of the Automotive Package. Here, the Commission has moved away from an approach that would have resulted, in practice, in the exclusion of internal combustion engine (“ICE”) vehicles by 2035. Instead, the proposal replaces the existing 100% fleet-wide CO₂ reduction target for cars and vans in 2035 with a 90% reduction target compared to 2021 levels. Manufacturers may compensate for the remaining 10% through a combination of flexibility mechanisms, including the use of e-fuels and biofuels and the incorporation of low carbon steel that is melted and poured in the EU. As a result, plug-in hybrids, range extenders, mild hybrids and certain ICE vehicles would not be automatically excluded from the EU market after 2035, subject to compliance with applicable emissions accounting rules and certification rules to be defined in secondary legislation.
The proposal also introduces targeted adjustments across vehicle categories. Light commercial vehicles (i.e., vans) would face a reduced 2030 fleet-wide CO₂ reduction target of 40% (down from 50%), and “small” electric vehicles (“EVs”) produced in the EU would benefit from “super credits”. However, the proposal does not yet define the methodology for determining when a vehicle qualifies as “made in the EU,” leaving this critical question to future delegated acts. This represents an additional window for stakeholder engagement, particularly given the likelihood that EU content and origin criteria will align with broader industrial policy initiatives, including the forthcoming Industrial Accelerator Act, which we reported on here.
First, in practice, facilitated compliance with the fleet-wide CO2 reduction target is expected to reduce demand for carbon credits from ICE carmakers that currently rely on pooling arrangements to lower their average emissions. Article 6 of Regulation (EU) 2019/631 enables carmakers to pool compliance efforts either within their own corporate group (“closed pools”) or with external partners (“open pools”). As overall emissions targets become easier to meet, manufacturers will have less incentive to join pools with companies—particularly those producing low‑ or zero‑emission vehicles—that ask for significant compensatory benefits for reducing a pool’s average emissions. This shift may require automotive companies participating in pooling arrangements to adjust their existing agreements.
Second, the proposed “super credits” for the sale of “small EVs”, which would allow producers to significantly lower their emission average, will be available only to companies manufacturing these vehicles in the EU and not participating in open pools. The same restrictions would apply to proposed additional fuel credits for the sale of vehicles capable of running on certain renewable fuels, as well as credits for cars manufactured using “low‑carbon steel made in the EU” from 2035 onward. These mechanisms are intended to facilitate compliance for both ICE and EV manufacturers, but only where production is located in the EU and where manufacturers do not participate in open pooling arrangements. As a result, this will reduce incentives for both ICE and EU‑based low‑ or zero‑emission manufacturers to pool with third‑country pure‑EV manufacturers or other external partners. Consequently, the windfall gains from EU carbon pools previously collected by independent EV manufacturers may be reduced.
Third, adjacent amendments to the calculation of emission credits for heavy-duty vehicles would also provide further flexibilities to meet their respective C02 targets. These changes aim to allow heavy-duty manufacturers to earn more emission credits before 2030, further facilitating compliance and diluting the market value of such credits.
Fourth, new compliance and monitoring provisions would require manufacturers to appoint a designated contact point for emissions reporting and benefit from multi-annual compliance windows, allowing emissions performance to be assessed over defined three-year periods rather than annually. The latter measure would also facilitate complying with CO2 emission targets, thus limiting incentives to pool with other “zero-emission” carmakers and impacting compensation levels for related carbon credits.
B. Demand Creation with the Battery Booster Strategy
Beyond supply-side regulation, the Automotive Package embeds a more explicit industrial and demand-side strategy, notably through the Battery Booster Strategy Communication.
The Strategy is explicitly aimed at strengthening EU manufacturing capacity and reducing reliance on non-EU suppliers.
The Commission intends to level the playing field, notably through investigations under the Foreign Subsidies Regulation (“FSR”) and public funding.
The Battery Booster Strategy establishes a Battery Booster Facility to mobilize EUR 1.5 billion from the Innovation Fund in the form of performance-based, interest-free loans to support European battery cell producers during the ramp-up phase.
EU Member States can continue to subsidize clean tech manufacturing, including batteries and raw materials, irrespective of the project’s location, under the Clean Industrial Deal State Aid Framework (CISAF) adopted in June 2025 (see our blogpost here). Since 1 January 2026, they must include resilience criteria in all new or updated electric vehicle subsidy schemes (Article 28 NZIA, see our blogpost here).
Looking ahead, the Commission indicates that the forthcoming Industrial Accelerator Act will propose EU content requirements for batteries and their components where public support is provided. Separately, the Commission is considering additional conditions for foreign direct investments in the battery value chain (potentially covering governance, maximum foreign ownership, technology transfer and supply chain integration) to ensure that such investments deliver clear value added for EU competitiveness and resilience. These measures sit alongside emerging resilience criteria for EV support schemes and the Commission’s push for strategic partnerships to diversify and de-risk automotive supply chains. They work in tandem with the Commission’s RESourceEU Action Plan, which details a wide set of measures aiming to secure the provision of Critical Raw Materials necessary for clean tech—and thus batteries manufacturing—as we reported on here.
C. More Demand Creation with Green Corporate Fleets
The proposed Regulation on clean corporate vehicles introduces binding national targets to accelerate the uptake of zero- and low-emission vehicles in corporate fleets, a segment representing approximately 60% of passenger cars and around 90% of vans registered in the EU. The framework applies to vehicles registered by large companies in vehicle categories M1 (i.e., passenger cars with no more than eight seats in addition to the driver’s seat) and N1 (i.e., light commercial vehicles with a maximum mass not exceeding 3.5 tons) with tailpipe emissions of up to 50 g CO₂/km.
The proposal introduces a dual fiscal mechanism with significant implications as of 1 January 2028. First, Member States would be prohibited from granting financial or fiscal support (including tax incentives) for corporate vehicles that do not qualify as zero- or low-emission. Second, Member States would also be precluded from granting financial or fiscal support for zero- and low-emission corporate cars and vans that are not “made in the EU.” The definition of “made in the EU” will be established through delegated acts, subject to consultation of Member State experts and subsequent scrutiny by the European Parliament and the Council. These origin criteria are expected to interact closely with forthcoming EU content requirements under the Industrial Accelerator Act.
The Commission is mandated to review the Regulation by 31 December 2032, including whether to introduce higher mandatory national targets for the share of zero- and low-emission vehicles in corporate fleet registrations after 2035.
D. Automotive Omnibus: Relevant Changes for EV Manufacturers
The Automotive Omnibus forms part of the Commission’s effort to remove regulatory barriers that disproportionately affect EVs, in particular in the light commercial and small passenger car segments. It is implemented through two parallel legislative proposals: a proposed Regulation and a proposed Directive.
- First, the proposed Directive amends existing EU rules on speed-limitation devices to exempt certain electric light commercial vehicles. Specifically, batteries for EVs classified as N2 (i.e., goods vehicles with a maximum permissible mass exceeding 3.5 tons but not exceeding 12 tons) solely due to battery weight, and with a maximum permissible mass between 3.5 and 4.25 metric tons, would no longer be required to install or use speed-limitation devices. This exemption is intended to place electric vans on an equal footing with their ICE equivalents and would apply, subject to Member State discretion, notably for domestic transport.
- Second, the proposed Regulation introduces a broader set of simplification measures. It complements the Directive by adjusting type-approval rules and related road-use requirements. In addition, the Regulation establishes the legal basis for a new “small EV” category, covering pure electric passenger cars below a defined length threshold. While presented as an initial step, the Commission signals its intention to support this segment through enhanced regulatory stability, including a potential freeze on new technical requirements and targeted incentives under the EU’s CO₂ standards framework.
- Finally, the proposed Regulation streamlines emissions testing under the Euro 7 regime and aligns EU type-approval requirements more closely with international standards, while expanding the Commission’s powers to adopt delegated acts on technical requirements for EVs.
In addition, the Commission is expected to submit an evaluation report on the application of the Type-Approval Regulation by September 1st, 2026, which may be subsequently accompanied by further simplification proposals.
II. Legislative Outlook and Strategic Considerations
The Automotive Package will move through the ordinary legislative procedure, with negotiations expected in early 2026. Member States already diverge on key issues, and the Package’s extensive use of delegated acts makes early, sustained engagement essential. The initiative marks a pivotal shift in EU vehicle policy, blending adjusted emissions targets with industrial and demand‑side tools and stronger EU‑content preferences. This is compounded by the upcoming EU Industrial Accelerator Act which may restrict foreign investors from owning over 49% of EU companies that operate in strategic sectors such as the automotive industry and the whole electric car value chain.
For both EU and third-country actors, the Package creates tangible opportunities but also introduces legal uncertainty and strategic risk that will need to be managed actively as the legislative process unfolds.
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Pol Revert Loosveldt of Covington & Burling LLP contributed to the preparation of this article.