On Oct. 16 France and Germany set out a joint position that softens the EU’s 2035 new‑car CO2 ambition and ties future industrial support more tightly to whether vehicles and parts are produced in Europe. The paper proposes a 90% fleet CO2 cut by 2035 without the compensatory offsets the Commission had envisaged, and says industrial support and procurement preferences should be limited to vehicles made in the EU and close partners under strict conditions.
Diplomatic flare‑up: Merz in Asia
The Franco‑German manoeuvre has already provoked diplomatic pushback. German Chancellor Friedrich Merz said he was “surprised” by the intensity of protests he encountered during a five‑day visit to Asia and promised to take partners’ concerns back to Brussels. South Korean and Japanese leaders pressed him to ensure their industries would not be excluded from future EU support schemes.
Japan’s prime minister, Sanae Takaichi, directly urged Merz not to leave Japanese‑built cars outside the scope of preferential treatment for EVs, according to reporting in Nikkei Asia; the meeting took place on Oct. 28 during Merz’s trip.
Rules on origin and content: what’s being negotiated
The Industrial Accelerator Act (IAA) and the linked ‘automotive package’ would make eligibility for some public subsidies, procurement preferences and targeted support conditional on assembly in Europe and on minimum local‑content thresholds for parts and low‑carbon inputs, according to EU‑policy coverage and reporting on the Franco‑German paper. Member states and industry remain divided on the precise percentages and on which partner countries (for example the UK, Norway or Türkiye) should be eligible.
What this means for the market
Central and Eastern Europe could be directly affected. CEE hosts large factories and supplier clusters for non‑European brands — including Hyundai and Kia plants in the Czech Republic and Slovakia — that supply the EU market. If subsidies and company‑car tax advantages are limited to vehicles meeting strict ‘Made in Europe’ tests, manufacturers and suppliers will face pressure to shift sourcing or expand local production to preserve access to public buyers and incentives. That dynamic would raise the value of CEE production sites — but also force rapid supply‑chain adjustments for firms whose current model depends on non‑EU sourcing.
The immediate political outcome remains uncertain: the Franco‑German paper still needs endorsement by other member states and the European Parliament, and details such as thresholds, transition periods and the treatment of trusted partners are subject to negotiation. Market actors in the region should therefore treat the package as a near‑term political risk and a medium‑term potential incentive to localise higher‑value parts and cell assembly.
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Sources: Reuters, POLITICO Europe, Nikkei Asia
