Germany and France Lead Ambitious 'Made in Europe' Car Regulations Beyond EU Policy
Germany and France have struck a bilateral agreement to create independent automotive certification standards that would operate alongside existing European Union regulatory frameworks. The October 2026 deal establishes specific criteria for vehicles to qualify as 'Made in Europe,' marking a significant shift in how member states approach industrial policy within the bloc.
Under the Franco-German agreement, manufacturers would need to source 70% of car components, excluding batteries, from European production facilities. Battery content would require 10% European sourcing. The standards would apply not only to EU member states but also extend to Britain, with provisions for other countries such as Norway to participate under certain conditions.
Europe's Automotive Sector Under Pressure
The initiative comes as Europe's automotive sector faces mounting competitive pressures. The industry provides 13 million jobs across the continent and accounts for 7% of EU gross domestic product, with 2.5 million people employed directly in manufacturing. European companies invest 34% of their research and development budgets in the automotive sector, underscoring its strategic importance.
Global production trends highlight the challenges confronting European manufacturers. In 2025, the EU contributed just 14.6% of worldwide car production, while Asia dominated with 62.1% of total output. China's production surged by 10.4%, with Chinese-made vehicles now representing 7% of EU sales. European automakers have lost more than 13 percentage points in market share since 2017.
Germany maintains a commanding position in European automotive manufacturing, producing 21% of cars sold within the EU, followed by Spain, the Czech Republic, France, and Slovakia. EU-based manufacturers supplied 73% of the European market in 2025, though 64% of all motor vehicles produced by the European automotive industry are exported to countries outside the union.
Broader Industrial Policy Objectives
The bilateral deal extends beyond origin labeling to encompass broader industrial policy objectives. It links modifications to 2035 combustion engine regulations with debates over introducing European preferences in public contracts. Under the agreement, carmakers would be required to reduce carbon dioxide emissions by 90% by 2035 without offsetting the remaining 10%.
Existing EU Regulatory Framework
Currently, the EU operates under the Whole Vehicle Type-Approval System, which allows manufacturers to obtain certification for a vehicle type in one member state and market it throughout the union without additional testing. No general EU obligation exists to mark non-food industrial goods with country of origin, as a 2005 European Commission proposal requiring origin marking on certain imported products never became law.
The European Commission had proposed a 'Made in EU' label in 2014, but despite initial interest, no regulation was adopted. Views within the Council remain divided, with France and Italy supporting such measures while Sweden, Denmark, and the Netherlands have reportedly opposed them. This political impasse provides context for why Germany and France are pursuing independent standards rather than working through existing EU channels.
Implications for the Single Market
The initiative raises questions about regulatory coherence within the single market. Industry observers note that separate national or bilateral standards could complicate cross-border trade and increase compliance costs for manufacturers operating across multiple European markets. The move also carries potential implications for trade relations with international partners, who may view divergent European standards as barriers to market access.
Whether other member states will align with the Franco-German framework or maintain existing approaches remains uncertain. The automotive sector's economic weight and technological transition toward electric and automated vehicles make these regulatory decisions particularly consequential for Europe's industrial competitiveness and cohesion in the coming years.
