EU's EV Policy Shift Gives Japan Time to Catch Up in Carmaking Technology

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The European Commission (EC) has announced that it will withdraw its strongly pro-electric vehicle (EV) policy, which essentially banned the sale of new vehicles with gasoline-fueled engines within the European Union. This policy change will take effect from 2035, said the EU executive body.

It had mandated that carbon dioxide (CO2) emissions during driving be reduced by 100% by 2035 compared to 2021 levels. However, this target will be relaxed to 90%. In addition, sales of engine-powered vehicles, including hybrids, will be permitted. However, the revised rules apply only to vehicles manufactured using steel and biofuels produced in the EU. These inputs reduce CO2 emissions during the manufacturing process.

Meanwhile, the policy change comes as the region faces sluggish demand for EVs. This comes amidst an onslaught of low-cost Chinese-made EVs. Germany, whose economy is highly dependent on the automobile industry, is suffering from a serious economic downturn and has been seeking deregulation. Recently, it has been joined by Italy, Eastern European countries, and others.

*New Chinese EVs are lined up at the port of Xiamen, Fujian Province, China, waiting to be exported. (©Xinhua News Agency/Kyodo)*

Regarding EVs, the Trump administration ended incentives for their purchase by consumers as of the end of September.

Charting a Path Forward

Revised EV promotion policies in major markets, such as Europe and the United States, provide Japanese manufacturers more time to catch up. They have been lagging, particularly in the EV sector. The motor vehicle industry is a core sector for Japan. Hopefully, they will utilize this opportunity to chart a path for future growth.

There is no change to the outlook for EVs becoming the main decarbonization technology for automobiles in the medium to long term. Meanwhile, Chinese car manufacturers' rise with EVs as their core product is truly remarkable. If Japan's carmakers cannot develop competitive EVs, their presence in the global market will inevitably decline.

The problem is how to allocate their limited funds for R&D. European and American policy revisions are forcing companies to focus not only on EVs but also on conventional gasoline-powered vehicles. Japanese motor vehicle manufacturers are therefore continuing to concentrate on gas engine-powered vehicles, as they were in the past.

*The Toyoda (now Toyota) Model AA passenger car (left) and the Toyota Corolla Concept. November 7, 2025, at Tokyo Big Sight. (©Sankei by Takumi Kamoshida).*

Moving Automakers Into the Future

At the same time, Japanese manufacturers must also expedite the development of technology for next-generation "software-defined vehicles," known as SDVs. These revolutionary vehicles will enable improved automobile performance by rewriting preinstalled software, just like with smartphones.

Although the impact has lessened since the initial announcement of US tariffs, the Trump administration's additional tariffs on automobiles have forced Japan's domestic automakers to shoulder a costly burden. With their profits under pressure, it is unrealistic for all these automakers to pursue omnidirectional development.

Earlier in 2025, Honda Motor Co and Nissan Motor Co ended their merger talks. However, they are considering standardizing the platform software to be installed in their next-generation vehicles and other joint initiatives. Similar partnerships between Japanese manufacturers could be one solution.

Unquestionably, in the days to come, the strategies of all Japan's automakers are certain to be tested.