European car companies, already beset by Chinese competition, had been warning that they would struggle to meet the ambitious 2025 carbon dioxide (CO2) reduction target, which exposed the sector to hefty fines.

The European Union's executive arm proposed on Monday to give automakers three years to meet the target, a change that must now be approved by EU states and the bloc's parliament.

Automakers worried that they would not meet the goal due to disappointing sales of electric vehicles (EV) in Europe and fierce Chinese competition.

EV sales accounted for just 13.6 percent of new car registrations in 2024, raising serious doubts that the EU goal of 25 percent for 2025 would be met.

To meet the EU's target, car companies would have to lower prices for EVs and limit sales of combustion-engine cars, which remain more profitable.

The reprieve on emissions protects profit margins while avoiding fines.

"The commission is trying to avoid further weakening a sector that is already facing multiple challenges," said Guillaume Dejean, an analyst at Allianz Trade.

"This gives automakers some breathing space to secure their margins," he said.

- 'First step' -

To reach the CO2 target, several traditional carmakers decided to buy carbon credits from EV companies such as Tesla or other competitors.

US-European auto giant Stellantis, whose brands include Jeep, Peugeot and Fiat, said the laxer emissions target is a "meaningful first step in the right direction to preserve the competitiveness of our sector while remaining faithful to the targets and committed to electrification."

Tesla and Volvo Cars, which had sold carbon credits to competitors, stand to lose out as car companies that struggled to ramp up EV sales have now been given more breathing space.

Automakers say the new flexibility can only work if the EU also takes steps to boost demand for EVs.

- 'Gift to car industry' -

Environmental groups have strongly criticised the Commission's move, arguing it sets back Europe's EV ambitions.

"The measure, which still needs to be passed by EU governments and MEPs, is an unprecedented gift to Europe's car industry in the middle of a compliance year," said advocacy group Transport & Environment (T&E).

"Weakening the EU clean car rules rewards laggards and does little for Europe's car industry except to leave it further behind China on electric vehicles," said T&E executive director William Todts.

Critics also warn that the relaxed emissions rules could delay the arrival of affordable electric models, such as the Renault Twingo, which is expected to make EVs more accessible to consumers.

The International Council on Clean Transportation (ICCT) estimates that the flexibility could result in an additional 50 megatonnes of CO2 emissions, the equivalent of the emissions from 50 coal-fired power plants, between now and 2030.

Some experts fear the decision could set a troubling precedent.

"If we begin weakening key targets in the EU's Green Deal, it sends a dangerous message," said Lucien Mathieu, a T&E researcher. "Other industries may start demanding similar rollbacks."

Sectors like steel and chemicals are already preparing to hold similar discussions with the European Commission.

bur-tsz/lth/cw

Stellantis

TOYOTA MOTOR

Volkswagen

Renault

Hyundai Motor Company

Volvo

FORD MOTOR

Tesla