The Franco-German auto deal sacrifices long-term industry viability

The deal hinges on a quid pro quo: Germany secures continued access for internal combustion engines beyond 2035, while France gains strict criteria for the Industrial Accelerator Act. This legislation aims to restrict public subsidies and procurement to vehicles with significant European value-add. Proponents argue this will force manufacturers to source essential components like batteries and software within the bloc, rather than relying on final assembly of imported parts.

However, the strategy contains a fatal flaw. By granting combustion engines a longer lease on life, policymakers are effectively shrinking the domestic market for electric vehicles. European battery plants are already struggling with excess capacity and canceled projects; slowing the EV transition denies these facilities the necessary demand to achieve economies of scale. When factories lack orders, the cost of production rises, making European-made electric cars less competitive against Chinese imports.

Ultimately, the agreement prioritizes political expediency over economic coherence. Forcing firms to build in Europe while simultaneously diluting the incentives to sell electric models creates a contradictory environment for investors. If the goal is to protect the backbone of the European economy, the current bargain fails to address the reality that global competitors have already moved toward full electrification. Unless the rules shift toward aggressive EV adoption paired with local manufacturing, the European auto industry risks becoming a sheltered but stagnant market.