Germany and France announced a joint pact Friday to support Europe's struggling automotive sector, anchored by a revised CO2 target: carmakers would need to cut exhaust emissions from new cars by 90% from 2035, backing away from the EU's proposed full ban on combustion-engine sales. The deal includes unspecified incentives for investment, research, and EV production in Europe. Chancellor Friedrich Merz called it a "good day for car drivers and for jobs," while President Macron framed it as proof of Franco-German "clear ambition" to transform the industry while upholding climate commitments. Both leaders urged swift adoption by EU partners. The pact still requires backing from other EU member states and the European Parliament to become law. The backdrop is brutal. Europe's automakers are losing the EV race to Chinese competitors who build cheaper, faster, and increasingly better vehicles. Volkswagen — headquartered in Wolfsburg, Lower Saxony — carries the heaviest exposure: overcapacity in German plants, high fixed costs, and dangerous reliance on the Chinese market that is now turning against it. Lower Saxony Premier Olaf Lies, who sits on VW's supervisory board, praised the deal as a "strong signal." Strip away the diplomatic language and the deal's structure becomes clear: this is a defensive move dressed in transformation rhetoric. The 10-percentage-point relaxation on emissions targets gives legacy automakers breathing room to keep selling combustion vehicles longer. The "investment incentives" remain undefined — no figures, no mechanisms, no timelines. Research funding without specifics is a press release, not a policy. The core problem remains unaddressed. Chinese EV makers like BYD have structural cost advantages of 20-30% over European rivals, driven by vertical integration of battery supply chains, lower labor costs, and massive domestic scale. A Franco-German agreement to slightly relax emissions targets does nothing to close that gap. It may even slow the urgency to close it by reducing regulatory pressure on incumbents to pivot. The deal's real function is political: it gives Merz and Macron a joint statement to show their domestic auto industries and unions, and it preserves Franco-German alignment as the EU's steering mechanism on industrial policy. As strategy against the actual competitive threat from China, it is thin. Europe needs battery gigafactories, critical mineral supply chains, software platforms, and charging infrastructure at continental scale. What it got Friday was a target revision and a communiqué.
