How Automotive Industry Suppliers Best Navigate Uncertainty Around Potential Bans on ICE Vehicles in the EU and China

The European automotive industry is currently grappling with a pivotal moment as rumors swirl about a potential revision of the EU’s landmark 2035 ban on sales of new non-electric cars, including both pure internal combustion engine (ICE) and hybrid vehicles. This is occurring just as policymakers signal a major downscaling of other EU directives, notably those tied to extra-financial corporate involvement such as CS3D (EU supply chain duty of vigilance) and CSRD (extra-financial reporting framework), amid visible market reluctance to fully embrace battery electric vehicles (BEVs). Notably, hybrid petrol/electric models now dominate new car registrations, while economic headwinds persist for the sector and its supply base.

What Did the EU Decide About the ICE Ban?

The EU formally enacted a law in 2023 banning the sale of new cars and light commercial vehicles with any CO2 emissions from 2035 onwards. This measure, supported by a majority in Parliament and the Council after lengthy negotiations, aims to ensure all new vehicles sold after this date are zero-emission—effectively excluding petrol, diesel, LPG/CNG, hybrids, and synthetic fuel models, with very limited exceptions for niche luxury and “supercar” segments. The regulation marks the most ambitious legislative step for climate action in the EU’s transport sector, aiming to make the sector carbon-neutral by 2050.

Ban Timeline, Potential Changes, and Political Shifts

The ban was agreed in late 2022, passing through formal EU channels throughout early 2023 and entering force in April. However, the revision clause originally scheduled for 2026 has now been brought forward, as car manufacturers successfully lobbied for earlier reconsideration with Brussels convening review meetings in September 2025. This acceleration reflects sectoral difficulties—falling car sales, modest growth in BEVs, and European producers struggling to compete with China’s rapidly expanding NEV (New Energy Vehicles) sector. Politically, the landscape has shifted after 2024’s elections, with a Parliament and key member states less aligned on fast-paced climate regulation, increasing the odds of a softer stance on timelines and technologies (notably for hybrid models).

The Rising Odds of a Revision

The odds of a revision or delay to the 2035 mandate have risen sharply in 2025. Key factors include:

• Insufficient consumer demand for BEVs: Despite efforts and massive public incentives on key markets, battery-electric registrations in the EU reached only 15.8% of the market in 2025, while hybrids surged to nearly 35%, confirming strong consumer preference for so-called transitional technologies and particularly “best-of-both-worlds” plug-in hybrid electric vehicles (PHEV).
• Industry pushback: EU automakers warn of stranded investments, job losses, competitive disadvantage, and potential market contraction if ICE and PHEV bans proceed without a longer transitional support phase.
• Political winds: Governments in France, Spain, and Germany – three major EU car manufacturing countries - support a review and are signaling openness to hybrid exceptions, while the European Parliament now houses more voices skeptical of restrictive environmental mandates. There is growing understanding that the survival of the European automotive industry is at stake, no less.
• Legislative process: A formal review is confirmed for the end of 2025 – we detail this below-, potentially revisiting the scope or schedule of the ban.

Parallel Shifts in China

China, the global leader in NEVs (including plug-in hybrids, battery-electrics, and fuel-cell vehicles), has yet to announce a date for a full ICE ban. The government’s roadmap aims for NEV sales to reach 20% of annual vehicle sales in 2025, with phased incentives and regulatory push in major urban centers. While a hard ban similar to the EU’s is not yet on the table, the NEV policy signal combined with tightening local restrictions is gradually transforming manufacturer and supplier strategies. Most analysts expect China to rely more on “carrot-and-stick” NEV promotion rather than a blanket prohibition of ICE cars prior to 2050, though a faster policy pivot cannot be ruled out, especially if global moves accelerate.

Supply Chain Implications

Both the EU and China’s policy directions hold major and challenging ramifications for automotive suppliers:

• Product planning: With hybrid cars now dominant in the EU and China maintaining flexible NEV definitions, suppliers must hedge bets across electrification technologies and remain responsive to regulatory signals.
• Investment risk: The specter of regulatory U-turns and delayed ICE bans means asset stranding risks—particularly for powertrain and related systems manufacturers—are heightened but not imminent, offering a window for adaptation.
• Industry fragmentation: Competitive advantage may tilt towards suppliers able to pivot between ICE, hybrid, and BEV platforms, with flexible tooling, R&D capabilities, and global production footprints.
• ESG and reporting: The simultaneous softening of CS3D and CSRD (with major reforms now nearing approval to reduce administrative burden) will ease compliance costs but place more onus on voluntary industry action, possibly fragmenting standards and due diligence practices across Europe.

10 Best Practices and Strategic Recommendations for Suppliers

1. Key Date – December 12, 2025: Mark this date for the European Commission’s strategic dialogue, which will determine if revisions to the 2035 ICE ban will be initiated. Outcomes of this meeting will affect propulsion technology planning and future market segmentation in the mid term.
2. Regulatory monitoring:  Closely watch EU regulatory calendars and Commission review meetings, adjusting portfolio and capital planning as new signals emerge.
3. Advanced Market Intelligence: Assign dedicated staff or external consultants to monitor EU policy developments, circulate pre- and post-meeting summaries, and alert management as Commission recommendations materialize.
4. Scenario Planning: Maintain flexible capabilities in both hybrid and full-electric systems and prepare contingency business scenarios based on three possible regulatory directions: (1) full implementation of the 2035 ICE ban, (2) hybrid technologies and e-fuel carve-outs, or (3) phased rollbacks. Use insights from Commission statements and preparatory documents published prior to December 12, 2025.
5. Investment Timing: Defer major capital projects tied explicitly to ICE until after Commission announcements in December. This will help avoid additional stranded assets and wasted CAPEX.
6. Hybrid Technology Diversification: Expand R&D and supply capabilities in hybrid and low-emission vehicle components, capitalizing on consumer preferences demonstrated throughout 2025. Position your company for stronger demand in transition categories in case regulatory relaxation occurs.
7. Client Communication: Proactively engage OEM customers by presenting risk assessments, likely regulatory scenarios, and joint project proposals that hedge technological bets across BEV, hybrid, and ICE/e-fuel platforms.
8. Policy convergence tracking: Track global policy convergence—especially in China and large export markets—so as not to be caught unprepared by sudden shifts in local content, technology certification, or emissions-related import duties. Other related automotive topics are on the table in Brussels at the same time, including a debate on bespoke regulatory standards for “small EV cars”.
9. China Policy Watch: Maintain continuous tracking of China’s NEV policy and pilot limitations in targeted cities. Watch for Chinese regulatory announcements scheduled for Q2 2026, which could trigger parallel supply chain adjustments and new export risks.
10. ESG Practicality: While CS3D and CSRD are being fundamentally streamlined, keep voluntary sustainability initiatives credible and auditable to maintain good standing with OEM partners and international clients.

In short, Friday, December 12, 2025 stands out as a turning point where regulatory clarity is likely to emerge. While the potential revision of the EU’s 2035 ICE ban would mark a major inflection point, industry fundamentals will favor adaptability and adequate, forward-looking risk management. Suppliers who stay close to legislative developments, diversify technological capabilities, and maintain strong relationships across the global value chain will be best positioned to thrive—even as regulatory uncertainty remains an enduring feature of the automotive landscape

To many of them, adapting to those evolutions will mean acquiring, divesting or carving out parts of their business portfolio. We take pride at CDI Global in being able to offer them critical tailor-made support, thanks to our unique combination of deep industry expertise, worldwide presence and 50+ year cross-border M&A experience.

By: Gerard Payen, CDI Global Automotive Industry Group leader