The European Union is laying down a bold new rule for the electric vehicle (EV) industry that could reshape its future competitiveness and trade dynamics. Under a draft policy unveiled by the European Commission, electric vehicles must have at least 70% of their components produced within the EU, excluding batteries, to qualify for state support and subsidies. The recent development comes as China looks forward to more of its EV makers reaching agreements on minimum prices with the European Union, a Chinese commerce ministry spokesperson said on Thursday, softening its previous criticism of firms negotiating with the bloc individually. This week, the European Commission approved German automaker Volkswagen’s Cupra brand request to exempt its China-made Tavascan SUV coupe from import tariffs, conditional on an agreed minimum price and sales quota. EU forces EV makers to source 70% of components locally According to draft legislation reviewed by reputable sources, the European Commission will also require that at least 25% of aluminium products and 30% of plastics used in windows and doors for the construction sector be produced within the EU to qualify for government subsidies or public contracts. These local content targets for the electric-vehicle and heavy industries, including construction, are part of a broader EU strategy to protect its €2.6 trillion manufacturing sector. EU manufacturing has been shuttering plants and cutting thousands of jobs due to low-cost Chinese competition, soaring energy prices, and the high costs of complying with the bloc’s strict climate rules. The European Commission’s Industrial Accelerator Act, set to be published on February 25, aims to shield these industries, in part by ensuring public procurement tenders consider carbon emissions. According to the draft legislation that new EVs, hybrids, and fuel cell cars benefiting from state schemes to help motorists purchase vehicles, or bought or leased for public bodies, must be assembled within the EU and have at least 70% of their components, excluding the battery, manufactured in the bloc, when measured by price. The legislation also states that several key components of a vehicle’s battery must be sourced from the EU. Some automotive officials have said this requirement will be challenging given the EV industry’s heavy reliance on China for battery technology and materials. The 70% components threshold is marked in square brackets in the draft legislation seen by analysts, showing it is still under discussion and could change. Automakers split as Brussels tightens industrial rules The proposed legislation has faced intense lobbying from industry. Those in clean technology sectors, such as renewable energy or batteries, and car parts suppliers, have been supportive of local content rules. Automakers, however, remain divided. BMW has warned that the rules could create unnecessary costs and bureaucracy, while VW and Stellantis recently advocated for a “made in Europe” public scheme to incentivize the use of local content in vehicles. Europe’s move mirrors similar trends worldwide, as governments adopt industrial policies to secure clean-tech supply chains. In the United States, for example, the Inflation Reduction Act features its own local content requirements tied to EV tax credits. Similar carmakers have also emphasized a “made in Europe” local-content rule that has been broadened beyond the EU to include manufacturing hubs such as Turkey and the UK, as well as major trading partners such as Japan. As electric vehicles continue to grow in global sales, accounting for a rising share of the automotive market, how regions balance competitiveness, industrial policy, and climate goals will be a defining question for the industry’s future. Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.
