Anyone who thought that July and August would be quieter months now knows better... More specifically, the European Commission is preparing a ZEV demand-side regulation that has the potential to reshape the dynamics of the entire industry. HY1 Results of OEMs have come in, showing continuing pressure on P&Ls, besides an impressive frequency of change in Top Management and rapidly changing boundary conditions for the industry.
In an extremely challenging environment, all European OEMs are unanimously reporting lower profits, with some even flipping to losses. Meanwhile, the rapid pace of innovation continues, exemplified by XPeng and SunCar launching an AI-powered, fully intelligent insurance solution for the new G7 EV. Lastly, we report on the EU's ambitions to accelerate European battery production - a central policy goal aimed at achieving greater strategic independence.
To all those enjoying their summer vacation we wish some rest and an opportunity to take a step back before a rest of the year that will be no less demanding than the beginning!
New EU regulation: Clean corporate fleets
Brussels is lining up a Clean Corporate Vehicles regulation for Q4 2025, which would force Europe's company fleets—buyers of up to 70% of all new cars and virtually every van, truck, and bus—to pivot to zero-emission vehicles (ZEVs) by 2030. The Commission argues that a single EU rulebook is needed to end today's patchwork of national incentives, give manufacturers a predictable demand signal, and flood the second-hand market with affordable ZEVs.
Four demand-side levers are currently on the table. First, binding ZEV quotas could be set for member states, large fleet operators, or specific sub-fleets. Second, tax breaks and purchase subsidies, as well as penalties, could be harmonised across the EU, with subsidies restricted exclusively to ZEVs. Third, high-mileage "niches" —such as rental, leasing, taxis, logistics, and public transport—could face bespoke electrification mandates. Finally, Brussels may require fleets to quickly release vehicles into the used-car market and equip them for vehicle-to-grid services, backed by monitoring and reporting rules. Stakeholders can weigh in during the ongoing "Call for Evidence," after which a draft law is expected to be finalized.
CVA perspective:
The EU's goal to create "Clean Corporate Fleets" initially sounds positive. However, upon analyzing the current proposal, we find several pitfalls that could negatively impact the automotive ecosystem. In short, the proposed regulation does not address the root cause of lower-than-expected BEV adoption: weak retail customer demand for (used) BEVs, driven by persistent issues with charging convenience and the broader BEV ecosystem.
Instead, the regulation seeks to artificially generate additional new-car (NC) demand from corporations, likely at higher BEV prices. These vehicles would subsequently flood the underperforming used-car (UC) market, leading to oversupply and falling BEV prices. The resulting widening price gap between NC and UC BEVs would make first-cycle BEV usage even more expensive, likely prompting avoidance strategies, a revival of ICE sales to retail customers, and ultimately fewer new-car sales overall. During the current "Call for Evidence," the entire industry is urged to clearly outline the various impacts of the regulation to the EU Commission.
HY1 update on OEM profitability
European OEMs are experiencing significant profit erosion during the first half of 2025. Several adverse factors are impacting these players, including high US tariffs, lower sales in China, asset and joint-venture impairments, considerable restructuring costs, regulatory pressures regarding CO₂ fleet emissions in Europe, shrinking BEV margins, increasing competition, and other challenges.
Against this backdrop, Mercedes' profits fell by 56% to €2.7 billion in H1, Stellantis reported a net loss of €2.3 billion, and VW Group's H1 profit dropped by 33% to €6.7 billion. Porsche AG narrowly avoided a loss, with profits plunging by 91% and its operating margin falling significantly below volume peers such as Skoda and Seat/Cupra within the VW Group. Although most OEMs foresee stabilization, guidance indicates continued difficulties in upcoming quarters.
CVA perspective:
At first glance, the current profitability situation for automotive OEMs seems alarming, significantly affected by special items, substantial provisions, impairments, and restructuring expenses. Notably, apart from Volkswagen in Q1, no other OEM has yet accounted for potential penalties associated with failing to meet EU CO₂ fleet emission targets during H1 2025. An analysis by CVA highlights a combined shortfall of roughly 500,000 BEVs, potentially resulting in penalties of up to €4.5 billion for the first half of 2025 alone. Nevertheless, OEMs remain optimistic that forthcoming demand-side regulatory measures, together with newly launched BEV product portfolios, will help bridge the BEV sales gap by 2027.
Considering the latest BEV product introductions, substantial restructuring efforts, strong liquidity positions, and a growing willingness among OEMs to undertake decisive strategic actions—exemplified by Stellantis' recent withdrawal from its hydrogen strategy—our medium-term industry outlook is increasingly positive.
Insurance topic - XPENG
XPeng has launched an AI-powered, fully-intelligent insurance with its new G7 EV release, using SunCar’s Anji Cloud platform as a continued strategic partner. The system personalizes coverage based on both driving behavior and vehicle usage, offering smarter, personalized policies integrated with the G7’s features. Similar to moves by NIO and Avatr, XPeng’s strategy reflects a growing trend among Chinese EV makers to bundle intelligent insurance with smart-driving tech for more seamless and data-driven ownership.
CVA perspective:
We have already been highlighting the importance of embedded insurance to remain relevant to the end-customer and optimize insurance risk and pricing. XPeng’s AI-powered insurance marks a smart shift to enable intelligent use of data in a holistic way directly from the vehicle. For OEMs, it strengthens brand loyalty and offers a way to monetize vehicle data. Insurers gain more accurate risk profiling, reducing fraud and losses and customers benefit from fairer pricing and coverage tailored to real-world usage. Compared to traditional annual insurances, it’s much more relevant for the era of connected cars.
EU co-funds battery giga factories
The European Commission has approved €852 million in Innovation Fund support for six large-scale battery cell production projects across France, Germany, Sweden, and Poland. The funding aims to strengthen Europe’s EV battery supply chain, reduce import dependence, and accelerate decarbonization by requiring all facilities to be operational by 2030.
The selected projects include ACC’s “ACCEPT” and Verkor’s “AGATHE” (France), Cellforce Group’s “CF3_at_Scale” and Leclanché’s “WGF2G” (Germany), NOVO Energy’s “NOVO One” (Sweden), and LG Energy Solution’s “46inEU” (Poland). These plants are expected to avoid 91 million tons of CO₂ emissions over ten years. Chosen from 14 submissions, the projects were evaluated for innovation, cost efficiency, and supply security. Funding agreements will be signed in Q3 2025, while less mature proposals may receive development support via the European Investment Bank.
CVA perspective:
The EU’s latest Innovation Fund allocation marks a visible shift from defensive regulation to industrial assertiveness. By selectively backing local battery champions, the Commission is aiming to close the competitiveness gap with China, which today controls the majority of global battery cell manufacturing and upstream supply chains.
While the scale of these six projects remains modest in absolute terms, the strategic logic is clear: reduce dependency, localize critical capabilities, and build industrial depth across the value chain. However, the long-term viability of these projects will depend not just on CAPEX support, but on execution speed, integration into OEM supply networks, raw material access and resilience to global price volatility.
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