For more than a century, the automotive industry has shaped Europe’s economy, jobs, and identity. However, both the continent and this key pillar are now at a crossroads. To stay competitive and cut emissions, they can look to Brazil for inspiration.
Europe faces a dual challenge that mirrors that of the automotive industry: how to decarbonize and remain competitive.
Europe remains an industrial powerhouse, with a GDP running into the trillions and an economy leading the world in exported manufactured goods. Yet rising regulatory burden, complex policy overlap, supply chain vulnerabilities, technological developments, and fierce global competition are putting pressure on its foundations.
The 2024 Draghi Report made this clear: Europe needs around €800 billion a year in private investment to stay competitive. The best return, it argued, will come from sectors where Europe already leads. Automotive is one of them, employing 14 million people and generating 30% of all industrial R&D investment. But that strength is slipping. Production continues to fall and investment risks moving elsewhere.
The auto sector isn’t just competing with market forces, it’s also adapting to immense climate transitions. Meeting Europe’s 2050 net-zero goals depends on this industry. Fair and ambitious CO₂ standards are vital, especially when combined holistically with other issues, such as a growth industry. But despite attempts, like the European Green Deal of 2019, industrial and environmental policies aren’t fully aligned. This misalignment is acutely felt in automotive.
As the Draghi Report put it: “The automotive sector is a key example of the lack of planning by the EU, which implements a climate policy without an industrial policy.”
That gap is visible in the proposed 2035 CO₂ standards, which effectively ban internal combustion engines (ICEs). The ambition is right. But the pace and structure risk undermining competitiveness and stability, which threatens millions of jobs and leaving Europe dependent on imports of electric vehicles.
Electric vehicles lie at the heart of many EU climate policies
A single-technology approach isn’t always the fastest route to lower emissions. Many original equipment manufacturers (OEMs) that once pledged full electrification are now reassessing. Not because they doubt climate goals, but because real-world challenges persist: consumer hesitation, charging infrastructure gaps, and the broader carbon footprint of EV production.
Life-cycle analysis (LCA) shows that EVs are cleaner than traditional ICEs over time, but not emission-free. Mining, manufacturing, and electricity generation all add up. When measured across a full life cycle, hybrid and alternative-fuel engines can perform well and close the gap between combustion and EVs. However, these are categories of vehicle that could fall foul of the 2035 CO₂ emission standards.
And globally, half of all new vehicles sold by 2040 will still have a combustion engine. Ignoring that half of the market means ignoring half of the emissions challenge. It also disincentives European companies from using their extensive R&D resources and experience to innovate further in the non-EV field.
A technology neutral policy allows innovation across all solutions: electric, hybrid, and low-carbon fuels. It rewards efficiency, not ideology.
Read more about how hybrids can speed up decarbonization.
Brazil offers a powerful example of how climate and industry can work together. Its Green Mobility and Innovation Program (MOVER) provides the automotive industry with clear long-term goals a stable regulatory framework, and a technology neutral approach.
MOVER’s objectives are straightforward: improve energy efficiency, boost R&D, promote biofuels and alternative propulsion, support jobs, and move toward carbon neutrality. Crucially, it does all this while letting different technologies compete on merit.
Backed by government support, tax incentives, and transparent carbon accounting, MOVER has drawn record investment. In 2024 alone, more than $20 billion in foreign direct investment flowed into Brazil’s automotive sector. Over 80% of new cars sold are flex-fuels capable of running on bioethanol, while electric models continue to grow alongside.
The result? Lower emissions, higher innovation, and a thriving local industry.
A program in the vein of MOVER, combined with Europe’s current R&D and resource advantages, could make great strides in tackling global emissions and boosting European competitiveness.
Brazil's tech-neutral policies balance both environmental and economic needs
Europe doesn’t need to copy Brazil’s policy wholesale. But it can learn from its principles.
By integrating these lessons, the EU could attract the private investment it needs, while keeping its automotive sector a driver of prosperity and innovation.
The decisions made now will shape Europe’s economy and society for decades. Ambition without pragmatism risks slowing both the green transition and industrial renewal. A technology neutral path valuing every route to decarbonization, can turn climate goals into growth opportunities.
At Horse Powertrain, we believe there are many roads to net zero. Our approach is grounded in science, data, and full life-cycle impact. We design and build diverse solutions, from hybrid powertrain systems to EV range extenders to advanced combustion engines compatible with low-carbon alternative fuels.
With operations across three continents, we see firsthand how regional realities demand flexible, inclusive solutions. By keeping innovation open to all technologies, we can accelerate the shift to sustainable mobility together.
If you’d like to learn more about how our solutions can support your next generation of vehicles, get in touch with our experts.