The EU Industrial Accelerator Act Proposal’s Significance for the Automotive Industry

On March 4, 2026, the European Commission proposed the Industrial Accelerator Act (IAA), a draft regulation that aims to reverse the decline of the EU’s manufacturing sector while supporting the adoption of cleaner technologies. This client alert is the third in a three-part series dedicated to the IAA. In our first alert, we provided an overview of the draft regulation. In a second alert, we took a closer look at the new foreign direct investment (FDI) review framework that the IAA would establish for certain strategic sectors. In this third and final instalment of the series, we focus on the implications of the proposal for the automotive industry.

1. Introduction

The importance of the automotive industry for the EU economy cannot be overstated. The sector generates around 7% of EU GDP. Motor vehicle manufacturing provides direct and indirect employment for 3.5 million people, and the sector is the largest private investor in research and development in the EU.

However, the transition from internal combustion engine (ICU) vehicles to zero-emission electric vehicles poses a significant challenge to the industry. According to the Commission, the proportion of EU content in ICU cars sold in the EU is typically above 80%. In battery-electric vehicles, however, this figure is below 50%, with the battery being the main driver of that gap. Meanwhile, China is at the forefront of developing battery technology and producing affordable electric vehicles. Its electric car industry is experiencing overcapacity driven by government subsidies and production-focused policies rather than consumer demand. Combined with U.S. tariffs diverting trade flows, this has left the EU market vulnerable to dumping, a problem that trade defense measures can only partially address. EU car makers also face challenges such as high labor and energy costs and regulatory hurdles.

In March 2025, the Commission presented an Automotive Action Plan to boost the global competitiveness of the EU’s automotive industry and support its transition to clean mobility, in line with the objectives of the Clean Industrial Deal (see this alert). In December 2025, this was followed by the publication of the Automotive Package, a set of legislative and policy initiatives that flesh out this strategy.

The IAA proposal delivers on key objectives of the Automotive Action Plan by

• Introducing conditions for inbound foreign investment in the battery and car manufacturing sectors (discussed in detail in our previous alert).
• Making access to public procurement procedures and other public support schemes for new electric vehicles subject to “Made in the EU” requirements.

The draft IAA also complements the Automotive Package by specifying the “Made in the EU” requirements for small zero-emission vehicles (to qualify for emissions super credits) and for corporate vehicles (to qualify for public support). Section 2 below explains the link between the IAA and the Automotive Package in more detail.

The IAA includes measures that would affect the automotive value chain at all levels, from the extraction of critical raw materials to the final assembly of vehicles. We provide an overview of these measures in section 3 below.

2. Link With December 2025 Automotive Package

The Commission’s December 2025 Automotive Package consists of four key components:

• A review of existing CO₂ emissions standards for cars and vans.
• A “Battery Booster” strategy providing €1.8 billion in funding to support the development of an EU-based battery supply chain.
• The Automotive Omnibus, a set of regulatory simplification measures designed to ease administrative burdens and cut costs for European car manufacturers.
• A proposal to decarbonize corporate fleets by imposing national targets for zero- and low-emission vehicles.

The package includes targeted amendments to the EU's CO₂ emissions standards for cars and vans. The current regulation provides for a 100% reduction in tailpipe CO₂ emissions for new cars sold from 2035 onwards. This would be revised to a 90% reduction target, while the remaining 10% of emissions would need to be offset with low-carbon steel credits and/or fuel credits based on emissions savings from using e-fuels and biofuels:

• Manufacturers could offset up to 7% of their CO₂ emission targets using low-carbon steel made in the EU.
• The fuel credits would be capped at 3% of manufacturers’ EU fleet-wide emissions targets.

This adjustment would allow the continued sale of hybrid and plug-in hybrid vehicles alongside pure electric vehicles beyond 2034.

The proposal contains additional flexibility up to and beyond 2035 to help car manufacturers comply with CO₂ emissions standards. For instance, the Automotive Omnibus introduces a new subcategory of passenger vehicles: small electric vehicles with a maximum length of 4.2 meters (M1E” category). The amendments to the emissions standards provide that, from 2025 to 2034, vehicles in this category and produced in the EU would count as 1.3 vehicles when calculating carmakers’ average CO₂ emissions. This effectively provides a bonus for small, domestically produced electric cars (“emissions super credits”).

The Automotive Package also includes a proposal for a regulation on clean corporate vehicles. This regulation aims to reduce the environmental impact of corporate fleets by requiring the Member States to ensure that a certain percentage of car and van registrations by large companies in their territory are zero- or low-emission starting in 2030. The regulation’s national targets would collectively lead to an EU-wide minimum share of 69% zero- and low-emission corporate cars (at least 45% of which would be zero-emission) and 40% zero- and low-emission vans (at least 36% of which would be zero-emission) by 2030, aligned with the overall target by 2035. The proposal leverages the purchasing power of large companies to provide manufacturers with greater certainty regarding the demand for these types of vehicles. Since corporate vehicles accumulate mileage faster and enter the secondhand market sooner, it is also hoped that this measure will increase the availability of affordable zero- and low-emission vehicles for private buyers.

The draft regulation on clean corporate vehicles also provides that, starting in 2028, Member States shall not provide financial support for the purchase, lease, rent, hire-purchase, or operation of corporate cars and vans unless they are zero- or low-emission and made in the EU.

Both the proposal amending the CO₂ emissions standards and the proposal for a Clean Corporate Vehicles Regulation leave it to the Commission to determine the criteria by which a car or van is considered “made in the EU” through a delegated act. The IAA proposal complements these instruments by providing an operational definition of the “Made in the EU” condition in Annex III (see below).

3. How the IAA Would Affect the Automotive Value Chain

The IAA proposal includes measures that would affect not only the automotive industry but also key upstream industries, such as those involved in steel, aluminum, batteries, and raw materials for batteries.

Conditions for foreign direct investment (FDI) in critical raw materials, batteries, and electric vehicles (EVs). The draft IAA would allow national investment authorities or the Commission to impose conditions on investments in so-called “emerging strategic sectors” by non-EU investors above certain thresholds, with the aim to ensure that these investments create real economic value in the EU.

These sectors include the manufacture of electric vehicles, battery technologies, and critical raw materials used for their production, such as lithium, nickel, cobalt, and manganese.

Our previous alert provides a detailed overview of the proposed FDI review framework.

Union origin and low-carbon requirements for steel and aluminum. Steel and aluminum are key materials for the automotive industry. The IAA would make products from energy-intensive industries (EII), including steel and aluminum, eligible for public procurement and other forms of public intervention only if they meet low-carbon requirements. Steel and aluminum intended for use in civilian vehicles, as well as products derived from these materials, would have to be at least 25% low-carbon. Additionally, aluminum would have to be at least 25% Union origin.

The criteria for steel and aluminum to be considered “low-carbon” have yet to be defined by future delegated acts to be adopted under the Ecodesign for Sustainable Products Regulation (ESPR).

Simplifying permitting procedures. The IAA expands the streamlined permitting provisions of the Net-Zero Industry Act (NZIA) to include decarbonization projects in EIIs. These industries include those supplying key inputs to the automotive industry, such as steel, aluminum, glass, rubber, and plastics. All EII decarbonization projects are to be considered strategic projects. This means they would benefit from accelerated environmental assessments and tacit approvals at intermediate stages of the permit-granting procedure. This removes a significant source of delay for decarbonization investments across the automotive supply chain.

Automotive manufacturing projects would also benefit from a streamlined permitting procedure based on a single application covering all required permits. A single point of contact would coordinate with the various permit-granting authorities.

The IAA would require Member States to designate industrial acceleration areas where industrial activities in key strategic sectors are geographically clustered, administrative procedures are streamlined, and access to financing and materials is facilitated. The automotive manufacturing industry (classified under NACE code C29) is listed as one of these strategic sectors, as are several EIIs that supply important inputs for the sector, such as metals, glass, rubber, plastics, and chemicals.

See our previous alert for more information about the IAA’s provisions on permitting and industrial acceleration areas.

Union origin requirements for EVs. Annex III to the IAA specifies the “Union origin” requirements for EVs.

EVs (including pure electric vehicles, off-vehicle charging hybrid electric vehicles, and fuel cell vehicles) that are purchased, leased, rented, or hire-purchased through public procurement procedures launched six months or more after the IAA takes effect would have to comply with the following requirements:

• The vehicle must be assembled within the Union.
• The total ex-works price of vehicle components (excluding the vehicle battery) originating in the Union must be at least 70% of the total ex-works price of all components (excluding the battery).
• The vehicle’s traction battery must contain at least three main specific battery components (including the battery cells) that originate in the Union.

Three years after the IAA takes effect, the following additional requirements would apply:

• The vehicle’s traction battery must contain at least five main specific battery components (including the battery cells, the cathode active material, and the battery management system) that originate in the Union.
• The ratio of the total ex-works price of e-powertrain components that originate in the Union to the total ex-works price of all e-powertrain components must be at least 50%.
• The ratio of the total ex-works price of main electronic systems that originate in the Union to the total ex-works price of all main electronic systems must be equal to or greater than 50%.

Corporate vehicles would have to comply with the same requirements to qualify as “Made in the EU” under the proposed Clean Corporate Vehicles Regulation (see above) and to be eligible for public support schemes.

Small electric vehicles in the new M1E category (see above) would only be subject to the following requirements to qualify for public procurement and public support schemes and for emissions super credits:

• The vehicle must be assembled within the Union.
• The vehicle must satisfy one of the following two criteria:
  • The ratio of the total ex-works price of vehicle components (excluding the vehicle battery) originating in the Union to the total ex-works price of all components (excluding the battery) is at least 70%.
  • The traction battery contains at least three main specific battery components (including the battery cells) originating in the Union.

As explained in our previous alert, the IAA proposal defines “Union origin” as content originating from the EU and “content equivalent to Union origin.” There is some debate as to whether vehicles assembled in third countries that benefit from equivalence would qualify as “Made in the EU,” or if only components sourced from those countries would qualify. This remains to be clarified, but the language of Annex III suggests that vehicles would only qualify as “Made in the EU” if final assembly takes place in the Union (i.e., in an EU or EEA Member State). Thus, vehicles assembled in an equivalent third country would not qualify for access to public procurement and public support schemes, small-car emissions super credits, or the Clean Corporate Vehicles Regulation’s targets, whereas vehicles assembled in the EU using components from those countries would qualify.

4. Practical Implications for the Automotive Industry

The draft IAA's practical significance for the automotive industry is fourfold.

First, if defines "Made in the EU" criteria that determine access to public procurement, public financial support, small-car emissions super credits, and corporate fleet compliance. The IAA leverages the purchasing power of government and corporate buyers to create lead markets for domestically produced green vehicles. However, uncertainty remains as to whether vehicles assembled in equivalent third countries could qualify as “Made in the EU,” or only those assembled in the EU.

Second, the IAA introduces new conditions for foreign investments in EV manufacturing, batteries, and critical raw materials used in battery production above certain thresholds. Non-EU investors in these sectors may face structural and/or behavioral obligations, such as ownership caps, technology transfer, local job creation, and local R&D spending.

Third, the IAA removes investment barriers by streamlining permitting procedures for manufacturing projects and requiring Member States to designate industrial acceleration areas covering automotive manufacturing and its key input sectors.

Fourth, the IAA promotes the decarbonization of energy-intensive upstream industries by linking access to public procurement and public financial support to low-carbon content requirements for steel and aluminum. Additionally, it extends the streamlined permitting provisions of the NZIA to decarbonization projects in industries that supply key inputs for the automotive industry, such as steel, aluminum, glass, rubber, and plastics.