The European Commission is preparing a new rule that would link public incentives for electric vehicles to a minimum share of locally produced components. The measure, included in the upcoming Industrial Accelerator Act expected on 25 February 2026, would require at least 70% of a vehicle’s components—excluding the battery—to be manufactured within the European Union in order to qualify for state subsidies.
A local-content threshold for subsidised vehicles
Under the draft legislation, vehicles benefiting from national purchase incentives or acquired for public-sector fleets would have to meet two core criteria: final assembly within the EU and a minimum 70% share of components produced locally, calculated by value. The requirement would apply not only to battery electric vehicles (BEVs) but also to plug-in hybrids and hydrogen fuel-cell cars.
For batteries, the draft stops short of setting a fixed percentage, yet it requires key components to originate in Europe. Industry observers note that this could be one of the most challenging elements, given Europe’s continued dependence on Asia—particularly China—for battery cells, active materials and the processing of lithium, cobalt and graphite.
The Industrial Accelerator Act is part of a broader industrial policy package aimed at strengthening Europe’s manufacturing base, valued at roughly €2.6 trillion. Beyond automotive, the proposal also introduces local-content rules for sectors such as construction and heavy industry, alongside requirements to factor CO₂ emissions into public procurement.
Why Brussels is introducing “Made in Europe”
The policy reflects mounting pressure on Europe’s industrial competitiveness. Rising energy costs, strict climate compliance and intensifying competition from lower-cost Chinese manufacturers have contributed to plant closures and job losses across the region. Local-content requirements are seen as a direct response to these structural challenges.
The draft also leaves open the definition of “Europe.” While it primarily refers to the EU and the European Economic Area, it includes the possibility of extending eligibility to “trusted partners” such as the United Kingdom, Turkey or Japan through future agreements.
Carmakers divided on the 70% rule
European automakers are split. Volkswagen and Stellantis have supported a “Made in Europe” incentive framework, arguing it would strengthen domestic supply chains and create a barrier for manufacturers that assemble vehicles in Europe while importing most components.
BMW has voiced opposition, warning that the rule could add costs and bureaucracy to an already strained supply chain. Its stance reflects a production network that relies heavily on global sourcing outside the EU. Meanwhile, European suppliers and battery producers broadly favour the measure, seeing it as protection for local industry.
The BYD case: assembly in Europe may not be enough
The upcoming regulation could have significant implications for foreign manufacturers expanding production in Europe. Chinese automaker BYD, for example, is ramping up output at its new Hungarian plant in Szeged, aiming for series production in 2026 with capacity of up to 200,000 vehicles per year.
While local assembly allows the company to avoid EU import tariffs on Chinese-built electric cars, it may not guarantee access to subsidies. If most components continue to be sourced from China, vehicles produced in Hungary could fall short of the 70% local-content threshold, excluding them from national incentive schemes and public procurement—particularly critical in the sub-€30,000 EV segment where subsidies heavily influence purchasing decisions.
Market impact: incentives, supply chains and affordability
The proposed rule comes as Europe’s car market undergoes a transition. Affordable electric models under €30,000 (210,000 DKK) are expanding rapidly, and in many countries public incentives remain decisive for consumers. If adopted, the local-content requirement would shift eligibility for subsidies from purely technological criteria to supply-chain origin, potentially narrowing the range of supported models.
This could affect not only Chinese brands but also European manufacturers with globally dispersed production networks, forcing a broader restructuring of sourcing strategies and investment in local component manufacturing.
Next legislative steps
The Industrial Accelerator Act is scheduled for publication on 25 February 2026, after which it will enter the EU’s ordinary legislative procedure, requiring approval from both the European Parliament and the Council. The proposed 70% threshold—still under negotiation in the draft—is expected to be one of the most contested elements, while detailed criteria for defining a “Made in EU” vehicle will likely be set through delegated acts in the months that follow.
