Why Europe's Nostalgia for Combustion Engines Is Killing Its Future

Welcome to Issue #99 of The German Autopreneur.

Europe just spent 6 months debating the combustion engine ban. Last week, the decision finally came.

The result? A compromise that satisfies no one.

But that's not even the real problem.

While Europe argued about combustion engines for months, China's new 5-year plan is taking shape. E-Mobility? Not even mentioned.

For China, that chapter's closed. They won. The market is theirs.

Now they're funding the next wave. Artificial intelligence. Humanoid robots. Quantum computing.

Meanwhile, Europe debates whether combustion engines should still be sold in 10 years.

China builds the AI factories and robots that will make those cars.

Today we'll look at what the EU decided. Why nobody's happy. And why Europe has a focus problem.

Europe's Never-Ending Combustion Engine Debate

Quick background: In 2021, the EU made a decision. From 2035 onward, only zero-emission vehicles can be sold.

A combustion engine ban.

But ever since, debates have flared up repeatedly. Should this really happen? Should the ban be reversed?

Europe spent the last 6 months stuck on exactly that question.

This debate cuts deepest in Germany.

Germany didn't just build combustion engines. Germany invented them. For nearly 150 years, they defined what Germany was. The heartbeat of Mercedes, BMW, Porsche. The reason "Made in Germany" meant the world's best cars.

Combustion engines aren't just technology in Germany. They're identity.

Now that's ending.

Hundreds of thousands of jobs are at risk. Entire regions could lose their economic foundation. A century of expertise becoming obsolete.

This isn't just about phasing out a technology. For Germany, it feels like losing an identity.

That's why the debate got so heated.

Two camps emerged:

Camp 1: Keep the ban

Countries like Spain. Companies like Volvo and Polestar.

They bet everything on EVs. Billions invested. They trusted the rules wouldn't change.

Now they're fighting to keep those rules in place. Any softening of the ban would be unfair. It would devalue their investments.

Camp 2: Scrap the ban

Countries like Germany and Italy. Companies like Mercedes, BMW, VW.

They want the ban gone completely. The official reason: Government shouldn't pick technologies. The market should decide. Let customers choose.

But that's just the public story.

Here's what's really happening:

German manufacturers face crushing pressure. Seven factors reinforce each other:

1) The China cash machine stopped

For decades, China was the money printer. VW sold more than every third car there. China profits funded everything else.

Then German market share crashed. From 24% to 15%. The money printer stopped.

2) EVs are killing combustion sales in China

Why did this happen?

More than half of new cars in China are now electric.

Here's the problem for German brands: Chinese buyers choose German cars for their combustion engines. But when they want an EV, they don't buy German.

So as combustion demand drops, German sales collapse with it.

That's the real reason for the market share crash.

3) Forced to fund both technologies at once

To survive in China, they need competitive EVs now. Racing against local brands with a 5-year head start.

But simultaneously, the US still buys combustion engines. Trump's pushing that even harder.

The consequence: They must develop EVs AND combustion engines in parallel.

Double the platforms. Double the supply chains. Double the production lines. All while China profits disappear.

4) Combustion engines need European volumes to survive

Here's why that matters:

Developing a combustion engine costs billions in fixed costs. The more you sell, the lower the cost per car.

If Europe stops buying combustion engines, only the US and a few export markets remain. Volumes drop. Margins collapse. Maybe turn negative.

5) The brutal paradox

That creates a brutal paradox.

German manufacturers desperately need European combustion sales. Without Europe, combustion volumes collapse. Without volume, combustion engines lose money.

And they need combustion profits to finance competitive EV development for China.

The paradox: They need Europe buying combustion engines to finance getting out of combustion engines.

6) The EU won't give them that time

But here's the problem: The EU won't give them that time.

Clear CO₂ targets exist. Miss them, pay billions in fines.

German manufacturers need time. Time to keep selling combustion engines profitably. Time to use those profits to catch up on EVs.

The EU says no. High EV quotas. Starting now.

7) Plant closures threaten

And if the transformation hits too fast?

Combustion plants shut down. Jobs vanish. Entire regions lose their economic foundation.

That's why the German government backs them. Slow it down. Make it socially acceptable. Protect jobs and regions.

The problem: Germany already tried this approach.

With coal. For decades, Germany pumped billions into keeping unprofitable coal mines alive. The goal: Make the transition gradual. Protect mining jobs as long as possible.

What happened?

Mining jobs disappeared anyway. Just over 50 years instead of 10.

Germany bought time and social peace. At a massive cost.

These 7 factors explain the desperate fight.

This dominated Brussels for months. Last week, decision day arrived.

The Combustion Engine Ban Was Scrapped - Kind Of

The EU Commission announced its proposal. Instead of 100% CO₂ reduction by 2035, now it's 90%.

Here's what changed:

The old rule: From 2035, only zero-emission cars can be sold. A combustion engine ban.

The new rule: From 2035, a manufacturer's average fleet emissions must be 90% lower than 2021.

What this means: Combustion engines can still be sold. But only if manufacturers collect enough credits.

How the credit system works:

Every combustion car sold produces CO₂ emissions. Manufacturers must balance those emissions with credits.

Manufacturers earn credits by:

• Selling EVs (small EVs earn bonus credits)

• Using EU green steel in production

• Selling cars that run on e-fuels (synthetic fuels made with renewable energy)

The big shift: Combustion engines remain legal.

But earning enough credits is expensive. Very expensive.

The effect: Combustion engines become luxury goods. Like a Rolex. For the few who can afford them.

In 2036, you'll probably still be able to buy a Porsche with a combustion engine. Much more expensive than today. But a Golf? Unlikely.

But here's the catch: This only applies to private buyers.

Company fleets face much stricter rules. By 2030, 54% of new fleet registrations must be electric. By 2035, 100%.

That's an effective combustion ban for company cars. And since fleets account for 60-70% of all sales, that's what really matters.

The bottom line: Almost nothing changes.

The result: Nobody's happy

• Volvo: "We're ready. Suddenly the rules change because someone else wasn't ready."

• VDA (German auto association): "Keeping all technologies on the table must be more than empty words."

• Polestar: "Backtracking now doesn't just hurt the climate. It destroys Europe's competitiveness."

The debate continues. Burning through time, resources, tax money, and focus.

And while Europe fights itself, here's what's happening in China.

China Moves On

Remember China's new 5-year plan? The one taking shape while Europe debated combustion engines?

E-Mobility doesn't even appear on the strategic industries list anymore.

The Chinese government just classified EVs as an established industry. Translation: State support ends. Case closed.

The numbers prove it. China will sell around 16 million EVs and plug-in hybrids in 2025. Market share sits stable above 50%. More than half of new cars are electric.

The mission is accomplished.

Over the past decade, China invested over $230 billion into building this industry. The cost? Over 400 EV makers went bankrupt since 2018. Many more will follow.

Sounds catastrophic. It's not.

This is consolidation after victory.

China built capacity for 50 million vehicles yearly. Only half get sold. The result: Brutal price wars. Hundreds of bankruptcies.

But also: Foreign automakers got pushed out systematically. China built an entire industry from nothing. Became the market leader. The cost leader. The technology leader.

Mission accomplished.

Now the incubation phase ends. State support withdrawn. Survival of the fittest begins.

Weak players die. The survivors become global powerhouses.

That was the whole point. China just created companies that can compete with anyone, anywhere.

Now comes the final shakeout.

Meanwhile, the entire system already pivots to the next target.

China Pivots to the Future

The new strategic industries: Artificial intelligence. Quantum computing. Bio-manufacturing. Humanoid robotics.

Even automakers are all in. BYD, Xpeng, Xiaomi. They're pouring billions into AI-powered robots for production lines.

The goal: Factories running 24/7. No human workers. No wages. No unions.

BYD just committed $13 billion to intelligent manufacturing. Xiaomi is building fully automated factories. Zero human workers on the production floor.

This is China's next move. EVs? Done. Now it's about production itself. AI and robotics. The next cost revolution.

While Europe debates combustion engines for 2036, China builds the robots that will produce cars in 2036. At costs nobody else can match.

Polestar's CEO nails it: "The Chinese won't pause. They'll take over."

My Take

Europe's real problem is focus. Where attention goes. Where energy gets invested.

Six months of debate. For a compromise nobody wanted. For rules that barely shift the status quo. For a deadline 10 years away.

Think about that for a second. The world will be unrecognizable by then.

AI is the next industrial revolution. It will fundamentally reshape how industries work. How economies function. How we live and work. The shift from hardware to intelligence accelerates even faster.

In 10 years, cars won't be mechanical transport. They'll be intelligent robots on wheels.

Many experts believe we'll have AGI by then. Artificial intelligence surpassing humans in every domain. Handling most knowledge work. Running factories.

Either way, 2035 will be unrecognizable.

And amid this tectonic shift? Europe is seriously debating whether 10% of fleet emissions can still come from combustion engines in 2035.

Europe has a focus problem.

Look, I get it. I understand the emotional attachment. The automotive industry built Germany. It means identity. Heritage. Pride.

I feel it myself.

But nostalgia isn't a business model.

China has what Europe doesn't. Long-term focus. Strategic capital deployment. They're building new industries systematically. One after another.

Europe burns resources preserving old structures. Compromises. Exceptions. Special rules. Calling it keeping all technologies on the table.

That works for now. While old industries still print money. But what happens when that stops? When the old dies and nothing new exists to replace it?

The real question: When does Europe finally stop debating yesterday and start building tomorrow?

🔗 Sources

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
Philipp

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After 10 years at Mercedes-Benz, I quit in 2020. In 2024, I started writing "Der Autopreneur". It became Germany's largest newsletter on automotive transformation. Now it’s also available in English.

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