France and Germany are moving towards a possible compromise over the future of Europe’s automotive industry, linking negotiations over EU vehicle-emission rules with a separate dispute over how strongly European-made products should be favoured in subsidies and public procurement.

The negotiations bring together two issues that have divided Paris and Berlin: Germany’s demand for greater flexibility in rules governing combustion-engine vehicles and France’s campaign for stronger “Made in Europe” requirements in EU industrial policy.

Officials involved in the discussions believe a broader Franco-German agreement may now be possible, although differences remain over how European content should be defined and whether products made in countries with EU free-trade agreements should receive similar treatment.

The automotive dispute follows the Commission’s decision in December 2025 to propose significant changes to rules that had originally required a 100 per cent reduction in tailpipe CO₂ emissions from new cars from 2035.

Under the revised automotive package, manufacturers would instead face a 90 per cent tailpipe-emissions reduction requirement from 2035.

The remaining 10 per cent could be compensated through mechanisms linked to low-carbon steel produced in the EU and the use of e-fuels and biofuels.

EU Today reported before the Commission presented the package that pressure from Germany, Italy and European manufacturers was forcing Brussels to reconsider the original 2035 framework.

The subsequent proposal confirmed the shift.

In March, EU Today also examined the Commission’s decision to link low-carbon European steel directly to vehicle-emissions compliance, creating a connection between automotive climate rules and support for Europe’s heavy industry.

Germany has continued to argue for a technology-neutral approach.

Berlin wants legislation to leave scope for combustion engines operating on renewable or low-carbon fuels rather than treating battery-electric vehicles as the only route towards lower emissions.

That position is particularly important for Germany because of the scale of its automotive sector and the large industrial supply chain built around combustion-engine technology.

France’s priority is different.

Paris wants EU industrial policy to ensure that public subsidies and procurement increasingly support products manufactured inside Europe.

The argument centres on the Commission’s Industrial Accelerator Act, proposed in March as part of a wider strategy to strengthen European manufacturing.

The legislation introduces “Made in EU” and low-carbon requirements for public procurement and public support schemes covering strategic sectors including automotive manufacturing, steel, cement and aluminium.

The dispute is over what “European” should mean.

France favours a relatively strict definition focused principally on production inside the EU’s 27 member states.

Germany has advocated what Economy Minister Katherina Reiche has described as a “Made with Europe” approach, under which some products from close trading partners could qualify if those countries provide equivalent market access to European companies.

That could potentially include states such as Norway and Switzerland and partners including Canada.

Spain has been among countries seeking a middle position between the French and German approaches.

The issue matters because modern automotive supply chains do not stop at the EU’s external border.

Battery materials, semiconductors, electric motors and other components can pass through several countries before final assembly, while Britain and Turkey remain deeply integrated into European vehicle production.

The EU-UK relationship is particularly sensitive because stricter rules of origin for electric vehicles are due to apply from 2027.

EU Today previously reported that European and British manufacturers were seeking another delay to those rules because the regional battery supply chain had not developed as quickly as originally expected.

At the same time, the EU is attempting to reduce dependence on Chinese electric vehicles, batteries and critical inputs.

The Commission has committed €1.8 billion to a Battery Booster strategy intended to strengthen the European battery value chain.

European electric-vehicle demand is continuing to grow. A 16-market European survey examined by EU Today showed battery-electric cars taking more than a quarter of new registrations in July, although large differences remain between national markets.

Manufacturers must therefore make investment decisions while several important elements of the regulatory framework remain under negotiation.

Factory conversion, battery plants and new vehicle platforms require investments planned years in advance. The conditions applying after 2030 will directly affect where those investments are made.

A Franco-German understanding would not determine the final EU rules. The European Parliament, Commission and other member states remain part of both legislative negotiations.

It could, however, bridge two of the most important disputes: Germany’s demand for greater technological flexibility in the 2035 vehicle regime and France’s demand that public money be used more directly to support European production.

The negotiations now underway suggest Paris and Berlin are increasingly treating those questions as parts of the same industrial bargain.