Paris and Berlin trade engines for subsidies

France and Germany agreed on 16 October on a joint position for Europe's car industry, building on an outline we reported earlier (To Brief) (Élysée). Berlin gets more room for carmakers to keep selling petrol and hybrid models after 2035. Paris gets public support for cars tied to European production (DW). Neither half is law yet, and the published statement leaves out the thresholds that decide who gains.

The same 90% target, asking less

Under current EU law, the average tailpipe CO2 of each carmaker's new cars must fall 100% by 2035, measured against a 2021 baseline (EUR-Lex). The target is an average across everything a maker sells, so it applies to the whole range rather than to any single model. It never touches cars already on the road.

In December 2025 the European Commission proposed letting carmakers stop at a 90% cut (Commission proposal). That would leave room for some engine sales after 2035. The gap would not be free, though. Carmakers would have to cover it with credits, accounting points earned when emissions are cut elsewhere in the chain, for instance through renewable fuels or low-carbon steel.

According to Reuters, the Franco-German position keeps the 90% headline but drops the duty to fill the gap with credits (Reuters). The two proposals share a number but not a burden. Under the Commission's version, a carmaker selling engines must pay for the remaining emissions somewhere else. Under the Franco-German version, it can stop at 90%. How much that changes the real mix of petrol and electric sales depends on accounting rules nobody has published.

A test for subsidies, not a sales ban

The production half concerns public money: purchase grants, tax breaks, leasing support and government fleet contracts. Le Monde has seen the negotiating paper, which sets out who would count as a European producer (Le Monde). Britain, Norway and Switzerland could join that accepted area only under reciprocity, meaning EU firms get similar access to their public contracts and support. France has dropped its opposition to including the UK (Guardian).

To qualify, a car would first have to be assembled inside the accepted area. At least 70% of the value of its non-battery parts would also have to come from accepted sources, and the battery would face its own origin test, according to the same Le Monde report. Because the test measures value, one expensive imported component can count for more than dozens of cheap local ones.

Nothing is banned. A car that fails the test can still be imported and sold to anyone paying with their own money. It only loses access to public support.

Origin decides, not ownership, and that splits even France's own carmakers. Given where each builds and buys its parts, the design is easier on Stellantis than on Renault, Le Monde judges (Le Monde).

Who gains, and who might pay

Carmakers with large petrol and hybrid ranges gain flexibility. They could sell more of those models without buying credits to offset them. Carmakers that build and source inside the accepted area gain something different. Buyers spending grants, tax breaks or fleet budgets would be steered toward their cars, and that subsidised demand would reach suppliers through the carmakers' orders.

The costs depend on a condition. If origin rules push carmakers toward dearer components, buyers and taxpayers would pay through higher prices, costlier subsidy schemes or fewer cheap cars that qualify. The research contains no estimate of that effect. Bruegel argues the sector needs a plan rather than undue protection, which can preserve weak competitiveness (Bruegel). Firms that electrified early, and green-steel makers counting on the Commission's credits, would lose part of the edge stricter rules gave them.

Workers got no promise. German vice-chancellor Lars Klingbeil wanted carmakers to commit to investment and jobs, and that dispute held up the announcement (Bloomberg). The joint statement contains no employment guarantee.

Other EU governments and the European Parliament must agree before any of this becomes law (Council of the EU). They may back one half and fight the other. Spain's Pedro Sánchez called allowing combustion cars beyond 2035 an error in December 2025 (Moncloa), yet Madrid supports a production preference with a wider circle of partner countries.

If EU lawmakers adopt the reported terms, carmakers will face a weaker emissions obligation, and cars built and sourced in approved countries will have an advantage in public support. The announcement offers no jobs guarantee. The thresholds behind both halves come from a reported negotiating paper, not from the statement Paris and Berlin published.