The European Union is moving to bolster its automotive industry through new local-content rules that would condition support on where car parts are produced. The draft Industrial Accelerator Act, circulated ahead of a formal unveiling, proposes that an electric vehicle must have 70% of the cost of its parts sourced within the bloc to qualify for EU subsidies - a calculation that would exclude the battery itself. The proposal also calls for minimum EU-based content within battery packs while explicitly excluding cells, a concession that reflects the current dominance of Chinese suppliers in battery cell production.
Member states are split over the measure. France has signaled a stronger protectionist posture aimed at reviving local manufacturing, while Germany has voiced greater concern about the risk of retaliatory responses from trading partners. The proposals have prompted vocal reactions across the industry from automakers and suppliers with significant links to non-EU production.
Christophe Perillat, CEO of French supplier Valeo, warned of dramatic shifts in production if incentives do not change. He said: "If we don’t do this, there will be massive relocations. I’ve never seen an industry go and come back." That sentiment captures the urgency felt by many inside Europe’s supplier base, where some firms argue that stronger local-content rules are necessary to preserve domestic employment and industrial capacity.
Industry groups and individual companies paint a mixed picture of current supply-chain exposure. Research by A2MAC1, a company that examines the provenance of vehicle parts by cost, found differing outcomes across two European-made electric models. Its review showed Volkswagen’s ID.3 as sourcing 86% of its parts by value from the EU and only 7% from China, excluding raw materials. Under the proposed threshold this vehicle would qualify as made in the EU.
By contrast, A2MAC1 estimated that parts produced in the EU accounted for 51% of the cost of the Renault 5, with China accounting for 41% - again excluding raw materials. When the battery is excluded from the calculation, EU content rises to about 76%, which would place the Renault 5 above the draft threshold.
Smaller suppliers have already felt sustained pressure. The French small suppliers association Fiev reports that its members cut their workforce by half between 2007 and 2024. Jean-Louis Pech, president of Fiev, warns that without intervention employment in that segment "could halve again by the end of the decade." Antoine Doutriaux, CEO of Plastivaloire, which closed a French plant last year, said that not mandating local content "would be very dangerous for European industry" and noted Chinese competitors pay roughly 30% less for raw materials and "don’t play by the same rules." These remarks underscore suppliers’ concerns about cost competitiveness and uneven regulatory environments.
Germany’s carmakers, however, emphasise their high exposure to the Chinese market and caution that strict local-content requirements risk provoking countermeasures. Karoline Kampermann, head of economic policy, foreign trade, SMEs and taxation at the German car lobby group VDA, said: "Further measures perceived as protectionist, which may include local content requirements, carry the risk of backlash from other countries." That risk is non-trivial for German manufacturers given that they sell more than a quarter of their vehicles in China.
China has rejected the premise that its automakers benefit from unfair subsidies and has previously retaliated against EU measures it viewed as protectionist, including import tariffs on Chinese-made electric vehicles. Such history fuels concern among EU policymakers and auto industry stakeholders about the diplomatic and commercial fallout of concerted protectionist measures.
The draft rules also define which countries count as local. Only parts originating in EU members plus Iceland, Liechtenstein and Norway - the members of the European Economic Area - would count toward the local-content calculation. The Commission said it would consider parts from "trusted partners" and take World Trade Organization agreements into account, but the core rule focuses on the EEA.
That choice is contentious. Automakers such as Ford point to heavy reliance on suppliers in nearby non-EU countries. Jim Baumbick, European president at Ford, argues that "excluding them would weaken production inside the EU itself." Britain, Turkey and Morocco have expressed interest in 'Made in Europe' rules, but with the caveat that they not be locked out of any benefits.
Turkey is an important manufacturing location for several global automakers. It is a low-cost hub used by Toyota, Stellantis, Hyundai and Renault. Cengiz Eroldu, president of the Turkish automaker association OSD, warned that exclusion would "pose a great risk to our country's investment environment" and described inclusion as "a strategic necessity."
Yet bringing countries such as Turkey into the eligible pool creates its own dilemmas. Some industry observers warn it could open a loophole allowing Chinese automakers to erect plants in Turkey to take advantage of lower energy and labour costs while still qualifying for EU subsidies. Chris Heron, secretary general of lobby group E-Mobility, captured the balancing act succinctly: "It really is like walking on eggshells." The comment reflects the fine line policymakers must navigate between protecting domestic manufacturing and avoiding regulatory openings that could be exploited to circumvent the rules.
With the draft proposal stirring tensions among member states and across industry stakeholders, the final shape of the measure and its implementation rules will determine whether it succeeds in strengthening local production without igniting trade disputes or undermining European manufacturing through unintended exclusions.