Automotive CEOs and European officials are expected to discuss the sector's troubles on Thursday in the first meeting held under a new initiative chaired by EU chief Ursula von der Leyen.
The "ambition" is to "roll up the sleeves" and find solutions for "a core engine for European prosperity", the European Commission said.
The auto sector employs more than 13 million people, accounts for about seven percent of the bloc's GDP, and is in the "middle of deep structural shifts", it added.
The so-called "strategic dialogue" aims to boost the sector's competitiveness. But much of the pre-summit debate has focused on the steep emission fines that car manufacturers could face in 2025 -- and their desire to avoid them.
Under ambitious efforts to combat climate change, the EU introduced a set of emission-reduction targets that should lead to the sale of fossil fuel-burning cars being phased out by 2035.
About 16 percent of the planet-warming carbon dioxide (CO2) gas released into the atmosphere in Europe comes from cars' exhaust pipes, according to clean transport advocacy group T&E.
As of this year carmakers have to lower the average CO2 emitted by all newly sold vehicles by 15 percent compared to 2021 or pay a penalty -- with tougher cuts further down the road.
This incentivises firms to increase the share of EVs, hybrids and small vehicles they sell compared to say big diesel-guzzling SUVs.
But some manufacturers complain that is proving harder than expected as consumers have yet to warm to EVs, which have higher upfront costs and lack an established used-vehicle market.
Sales of electric cars slid by 1.3 percent in Europe last year, accounting for 13.6 percent of all sales, according to the European Automobile Manufacturers' Association (ACEA), an industry group.
The prospect of sanctions, which some estimate could reach up to 15 billion euros ($15.7 billion) in total, has sent jitters through a sector already hobbled by high manufacturing costs and what the EU deems "unfair" competition from subsidised Chinese rivals.
German car giant Volkswagen is weighing factory closures at home for the first time, just one of a string of cuts announced by auto manufacturers and suppliers.
"The risk of paying heavy penalties... would divert necessary funds from R&D and other investments," the head of the ACEA and CEO of Germany's Mercedes, Ola Kallenius, wrote in a letter to the commission.
EU rules allowing manufacturers who fall short to avoid fines by buying emissions credits from less polluting competitors have also come under fire.
Italy's Industry Minister Adolfo Urso this week described the scheme as a "perfect storm" due to the potential for European firms to dodge EU fines by buying carbon credits from overseas EV-makers.
- Slow Europe, fast China -
Some carmakers and countries including France and Italy would like to see the penalties ditched.
But Brussels worries this would unfairly penalise producers who have invested in order to comply.
It would also remove a key incentive for firms to speed up their electric transition at a time when Chinese manufacturers have raced ahead, said Lucien Mathieu of T&E.
"Effectively, this is rolling out the red carpet to Chinese competition, because it's sending a signal to European carmakers that they can slow down even though they are already late," he told AFP.
A study by the Brussels-based group in September showed only Volvo had already reached its 2025 target. Ford and Volkswagen were the furthest away from it.
Yet the situation was similar when lower targets came into force in 2021 and producers made a late dash to comply, Mathieu said.
About a dozen lower-priced new European EVs are slated to come onto the market this year and boost sales, he noted.
Fines aside, there are other ways Brussels, which has already imposed tariffs of up to 35.3 percent on Chinese EVs, could support the sector.
A senior EU official said incentives for businesses to buy electric are an option. "Company fleets" account for more than half of new cars purchased in Europe, the official said.
The 27-nation bloc could also seek to improve a patchy charging network, modernise grids to allow for faster charging, bring down energy costs, cut regulations and loosen China's grip on battery production, analysts say.
But some fret about the pace of reforms. The dialogue brings together carmakers with trade unions, civil society groups, suppliers, experts and others. It foresees a series of "thematic working groups" and consultations that are not expected to produce an actionable plan for months.
"They're moving very slow and the Chinese are going very fast," said Felipe Munoz, an analyst with the automotive data company Jato Dynamics.
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