Carmakers across Europe have been granted breathing room to meet their CO2 targets. Some of the industry’s biggest names—most notably Volkswagen—were spared from facing hefty fines.
The acceleration of EV sales last year, now at almost 20% of registrations, helped buy them some extra time. According to a report by the ICCT (International Council on Clean Transportation), the Volkswagen Group narrowly avoided a multi-billion-euro penalty in 2025.
The regulatory shift that relaxed the European Union’s vehicle emissions targets gave Europe’s biggest car manufacturer some slack.
Dodging a 2.2 billion fine
Originally, the Volkswagen Group was facing a shortfall of 8 grams of CO₂ per kilometer above its target. However, the carmaker benefited from new EU rules allowing compliance to be averaged over three years, rather than annually.
As a result, hypothetical fines of up to €2.2 billion—calculated by environmental analysts based on its 2025 performance—remain just that: hypothetical.
The relaxed timeline, introduced by the EU Commission and confirmed early last year, postpones hard enforcement until 2027, so underperforming automakers can benefit from the space to adjust their fleets without facing immediate consequences.
In any case, Volkswagen isn’t betting on future good fortune or leverage from its lobby department. A shift in its showrooms – or configurators – is happening. Its battery electric vehicle (BEV) sales jumped 7% in 2025, helping to cut its emissions gap by nearly half compared to the start of the year.
One in five electric now
Of course, the progress is tangible in the overall car market. Europe’s average CO₂ emissions from new car registrations dropped in 2025 (from 109 g/km to 106 g/km according to Dataforce), driven by the surge in electric vehicle uptake.
Battery electric cars made up 19% of all new car registrations, the highest share ever recorded, and a 31% increase in volume over the previous year. Combined with plug-in hybrids, electrified vehicles now claim 28% of the market.
BMW and Mercedes-Benz, by contrast, not only avoided the risk of penalties. They achieved early compliance. BMW’s fleet averaged 90.3 g/km against a target of 93.9 g/km.
Mercedes, though over its direct target as an independent car maker, met compliance requirements by pooling emissions with the Geely Group. So it was helped by strong zero-emission sales from Volvo, Polestar, and Zeekr.
Both German premium brands are now below their 2027 target levels, two years ahead of schedule. In the case of Mercedes, that breathing room comes at a cost, as it needs to buy those carbon credits from Geely.
Regulatory certainty is critical
As expected, progress is uneven over the playing field. Stellantis, for example, exceeded its target by 6.6 g/km. It would have faced a billion-euro fine under the old system, despite being part of Tesla’s emissions pool.
The group’s high volume magnifies the impact of even minor shortfalls. Subaru, another member of the Tesla pool as it falls short on electric models, was a peculiar highlight. It exceeded its CO₂ limit by nearly 79 g/km! Under the old rules, the invoice from the EU officials would have landed on 128 million euros.
The question remains: how will the flexed approach to compliance further slow the rollout of more affordable EVs? Analysts at ICCT argue that regulatory certainty is critical for accelerating electrification.
In the first half of 2025, uncertainty over the rules coincided with slower EV adoption. But the market bounced back strongly by year’s end.
North versus south
Regional variation remains stark. While BEV sales surpassed 50% in the Nordics and the Netherlands, larger markets like Germany and France hovered around 19–20%. Southern European countries are catching up, with Spain and Italy posting annual growth of 77% and 46% in BEV registrations, respectively.
All in all, the EU’s regulatory strategy appears to be working. Carmakers are steadily closing the compliance gap. With more affordable electric models on the horizon and emissions averaging providing breathing room, most major manufacturers now appear on track to hit the 2027 targets without the financial strain. Change doesn’t come overnight.
