On March 5, 2025, the European Commission published the Industrial Action Plan for the European Automotive Sector. This plan outlines measures to strengthen the competitiveness of the European automotive industry and to accelerate the transition to zero-emission mobility in the EU. This plan is the result of the “Strategic Dialogue” that has been taking place in Brussels in the last month between vehicle manufacturers in the EU and EU officials. The plan announces a catalogue of initiatives to be adopted by the Commission, but the expected timelines and the interplay between different initiatives is not always clear. This blog summarizes some of the initiatives likely to be relevant to stakeholders in the EU automotive industry—particularly those in the electric vehicle (“EV”) supply chain.
Battery Manufacturing and Innovation Support
The Commission will make available EUR 1.8 billion in the next two years to support companies manufacturing batteries in the EU by mobilizing resources from the Innovation Fund. This initiative aims at increasing EV battery manufacturing capacity in the EU.
This initiative confirms declarations of Executive Vice-President Maroš Šefčovič in December 2023 that a budget of up to EUR 3 billion would be allocated through the Innovation Fund to battery manufacturing, including the production of upstream components and battery material recycling. In December 2024, the Commission launched a EUR 1 billion call for electric vehicle battery cell manufacturing (IF24 Battery) to support projects that can produce innovative electric vehicles battery cells or deploy innovative manufacturing techniques, processes and technologies. It also added EUR 200 million in loan guarantees to the InvestEU program from the EU Innovation Fund.
The EU will also explore direct production support for companies manufacturing batteries in the EU, potentially combining EU-level funding with national State aid to de-risk private investments and accelerate factory rollouts. The Commission is expected to introduce a new Clean Industrial State Aid Framework making more permanent the relaxed State aid rules allowing Member States to support manufacturing capacity of clean tech “made in Europe”, including batteries and their key components (see our blog).
Research and innovation for electric vehicle batteries technologies will further be supported through Horizon Europe, with EUR 350 million allocated for 2025–2027. This aims at benefitting the EU value chain of next generation batteries, including recycling.
Demand-side Initiatives geared at benefitting EV Manufacturers
A review of the Car Labelling Directive in 2026 will seek to enhance consumer awareness of EV sustainability benefits, to help them understand the environmental impact of vehicles. A legislative proposal to decarbonize corporate fleets is expected by the end of 2025, with the same aim of accelerating EV adoption across businesses. This will be complemented by additional initiatives, including an action by Q3 2025 to drive the uptake of zero-emission vehicles in selected airport rental fleets. Additionally, a new network code on demand response, planned for Q1 2026, will ensure full market participation for flexibility services, which help the electricity grid adapt to variations in energy supply and demand. In this regard, the code will support bi-directional charging for EVs.
Raw Materials and Their Recycling
The Commission will present later in March 2025 a list of Strategic Projects, under the Critical Raw Materials Act, covering who will benefit from streamlined permitting procedures. A Critical Raw Materials Centre will be launched in 2026 to improve market transparency, aggregate demand, and coordinate joint investments. The Commission also adopted a Decision under the Waste Framework Directive clarifying that, when becoming waste, black mass shall be classified as hazardous waste. This seeks to better control shipments of black mass, and especially a ban on its export to non-OECD countries.
Local Content Requirements and Trade Protections
Upcoming legislation (i.e., the Industrial Decarbonisation Accelerator Act and the Circular Economy Act) will introduce European content requirements for battery cells and components in EVs sold in the EU. Furthermore, the Commission will define rules of origin in trade defense measures for the EV ecosystem to prevent alleged circumvention of tariffs through third country assembly. Finally, any public support benefitting the automotive industry will be made conditional on resilience and sustainability criteria to be proposed under the Industrial Decarbonisation Accelerator Act.
Connected and Autonomous Vehicles
The Commission plans to undertake actions to promote the development and testing of autonomous vehicles in the EU. The Commission will work with Member States to establish at least three “large-scale cross-border test beds” for autonomous vehicles starting in 2026. In addition, the Commission plans to develop regulations for approving autonomous vehicles, including approval of unlimited series of vehicles with automated parking systems in 2025, hub-to-hub freight transport in 2026, and harmonized approval procedures to facilitate pre-deployment testing of Automated Driving Systems (ADS) and Advanced Driver Assistance Systems (ADAS) on open roads across the EU in early 2026.
The Commission will also launch a so-called “European Connected and Autonomous Vehicle Alliance.” This alliance will be tasked with developing a software platform and in-vehicle computing architecture in the EU for software-defined vehicles, innovative AI solutions, and a large-scale distributed pilot facility in 2026/27. The alliance will also take actions to accelerate the transition toward autonomous driving in the EU.
Regarding existing regulations that cover certain aspects of connected vehicles, the Commission announced plans to conduct a cybersecurity risk assessment on connected vehicles under the NIS 2 Directive. The Commission will also publish guidance on the application of the Data Act and in-vehicle data sharing, likely in September 2025.
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Covington’s cross-practice team has been closely following the development of the Strategic Dialogue on the Future of the Automotive Industry, and instruments that form part of a broader array of legislative initiatives and communications aimed at fostering an electric vehicle ecosystem. This includes the adopted Critical Raw Materials Act and the adopted Sustainable Batteries Regulation. Covington can assist businesses in the automotive sector to navigate the risks and opportunities offered by these instruments for their future projects and investments in the EU or elsewhere.