EU Relaxes 2035 Engine Ban: Why Costs, Complexity and Asset Risk Are Still Rising

The European Union’s decision to soften its 2035 Engine Ban on new internal combustion engine (ICE) vehicles was initially welcomed by parts of the automotive industry. Headlines suggested renewed flexibility for manufacturers and a slower, more pragmatic transition away from petrol and diesel powertrains.

However, as the detail of the revised framework emerged, optimism quickly gave way to concern. What appears, on the surface, to be a concession to carmakers instead introduces new layers of cost, complexity and uncertainty, with significant implications for automotive assets, production equipment and vehicle residual values.

From Hickman Shearer’s perspective, the revised 2035 Engine Ban reshapes risk rather than removing it.

What has actually changed?

Under the updated proposals, manufacturers may continue selling certain petrol and hybrid vehicles beyond 2035, but only under strict conditions. Any remaining emissions must be capped at 10 per cent of 2021 levels and fully offset using green steel, sustainable fuels and Europe-sourced low-carbon components.

In practice, this means combustion engines are not being given a simple extension. Instead, they are being permitted within an increasingly constrained and expensive framework. Industry bodies in Germany and Italy have described the measures as ineffective and potentially damaging to vehicle affordability, while Stellantis has argued that the revised 2035 Engine Ban still fails to address the practical challenges facing vans and light commercial vehicles.

Even in France, which has previously advocated for stricter European content rules, concerns remain about flexibility for commercial vehicles and the feasibility of meeting 2030 emissions targets.

Diverging views and policy fragmentation

The revised framework has exposed deep divisions across the EU. Some policymakers see an opportunity to maintain consumer choice, while others fear that reopening the door to combustion engines risks slowing EV momentum just as global competition intensifies.

Under the updated approach, plug-in hybrids could account for more than a quarter of new car sales in Europe. While this may ease the transition for some buyers, critics argue it undermines long-term decarbonisation goals.

At the same time, proposals to mandate EV adoption across corporate fleets remain contested. Policymakers view these requirements as essential to creating a supply of affordable used EVs, particularly important in a market where most consumers buy second hand. Leasing companies, however, warn that without meaningful incentives, such rules could exacerbate an already difficult operating environment.

This fragmentation adds further uncertainty to planning, investment and valuation decisions across the automotive sector.

Implications for automotive assets and production equipment

From an asset valuation standpoint, the revised 2035 Engine Ban introduces new and uneven pressures across the manufacturing base.

Production equipment dedicated solely to combustion engines faces accelerated value decline. Requirements for green steel, sustainable fuels and low-carbon components significantly increase manufacturing costs, reducing margins and shortening economic life. As utilisation falls and compliance burdens rise, single-purpose ICE machinery is likely to depreciate more rapidly.

By contrast, flexible production assets capable of supporting multiple powertrains (ICE, hybrid and electric) are better positioned to retain value. These assets allow manufacturers to adapt output in response to shifting regulation and consumer demand, supporting longer useful lives and stronger secondary-market appeal.

Upstream supply chains are also affected. Energy-intensive steelmaking facilities face growing pressure to convert to low-carbon processes, potentially pushing some assets into early obsolescence. Meanwhile, equipment linked to battery assembly, lightweight materials processing and EV-related technologies is likely to benefit from more stable long-term demand.

The result is a widening spread of valuations across the automotive asset base, driven by geography, technology and regulatory exposure.

Vehicle residual values: short-term support, medium-term pressure

For the vehicle market itself, the effects of the revised 2035 Engine Ban are likely to diverge over time.

In the short term, regulatory uncertainty may encourage some consumers to delay switching to fully electric vehicles. This could support used values for petrol and hybrid models over the next one to two years, with plug-in hybrids in particular seeing a temporary uplift in demand.

However, this support is unlikely to be sustained. As the cost of producing new ICE vehicles rises due to low-carbon material requirements, retail prices will increase and demand will soften. This will inevitably filter through to the second-hand market.

Smaller, more efficient hybrids are likely to hold residual values better than larger or fuel-intensive combustion vehicles, particularly as running costs rise. As corporate fleet requirements increase the availability of affordable used EVs, traditional ICE vehicles will face more sustained downward pressure on values.

Navigating the road ahead

While the EU’s revised 2035 Engine Ban may extend the life of combustion engines marginally, it does so at the expense of simplicity. Increased cost, regulatory complexity and policy fragmentation all contribute to greater market volatility.

For manufacturers, lenders, fleet operators and investors, the emphasis must now be on flexibility and timing. Asset strategies that assume a linear or predictable transition risk becoming misaligned with reality.

At Hickman Shearer, we see informed valuation as critical during this period of transition, helping clients understand where value is likely to erode, where resilience remains, and how best to position assets as Europe navigates an increasingly uncertain automotive future.

About Hickman Shearer

At Hickman Shearer, we specialise in delivering exceptional RICS and ASA certified capital asset valuation, management, and sales services. Our expertise span a wide range of global industries, ensuring that we provide tailored and insightful commercial valuations and equipment valuation services to meet your unique needs. With a strong track record of delivering robust and independent advice, we are committed to supporting businesses in achieving their strategic objectives.

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