EU Automotive Industry: Antitrust and Regulatory Updates You Need to Know

May 14, 2024

In the European Union (EU), battery-electric vehicle (BEV) registration outpaced diesel vehicles for the first time in 2023. The EU electric vehicle (EV) market continues to show positive signs of consumer and private investment. However, the automotive industry is facing a flurry of regulatory and legal developments, including new antitrust, supply chain, and intellectual property (IP) measures.

Investigations into price fixing and anti-subsidy probes in the last year reinforce the EU’s—and its member states’—zero-tolerance position for market corruption and noncompliance by automotive industry companies. As EV and infrastructure appeal grows among EU consumers and businesses, key areas of focus emerge in member states and among policymakers that are shaping the EU automotive regulatory landscape and the legal implications for automotive industry companies originating from or operating within member states.

EV Subsidies: Encouraging the Transition

The global push towards decarbonization has prompted governments to introduce subsidy programs to incentivize EV adoption. In the EU, member states are making changes to national EV subsidy schemes, albeit with differing approaches. In 2024, Germany and France are projected to cut back on EV subsidies due to financial constraints, while Italy and the United Kingdom (UK) (a former EU member) are expected to introduce and expand subsidy offerings. These expected changes will not only impact consumer purchasing decisions, but also influence the competitiveness of automotive industry companies operating in the EU and its member states.

In contrast to the United States (US) or China, EU automotive industry companies are subject to stringent state aid rules and cannot receive aid from EU member state governments. In addition, they are subject to regulation when accessing certain subsidies from non-EU countries. The EU’s Foreign Subsidies Regulation rules introduce three key tools to regulate foreign subsidies. These rules require companies to obtain approval from the European Commission before implementing select transactions and accepting contracts, and impose reporting obligations on companies.

Notably, the 2023 commencement of multiple anti-subsidy investigations by the European Commission into EU wide imports of BEVs from China underscores the EU’s commitment to enforcing fair competition and addressing distortions caused by foreign subsidies.

EU Antitrust Measures: Ensuring Fair Competition

Antitrust enforcement remains a focal point in the EU automotive sector. Investigations into price-fixing allegations among major tire manufacturers and the scrutiny of foreign subsidies granted to EV makers highlight the EU Commission’s commitment to fostering fair competition. Additionally, updates to antitrust guidelines, such as the Horizontal Guidelines covering sustainability agreements, reflect evolving priorities, with a focus on promoting sustainable practices while preventing anti-competitive behavior including through the Motor Vehicle Block Exemption Regulation (MVBER). MVBER plays a significant role in EU antitrust law developments, particularly concerning access to information for independent automotive repair shops.

A notable aspect of these developments is the observed divergence in approaches between the EU, the UK, and the US regarding sustainability agreements. The EU Commission adopts a comprehensive and flexible understanding of the importance of sustainability, encompassing not only environmental concerns but also human rights considerations.

Supply Chain Laws: Upholding Human Rights and Sustainability

The EU’s emphasis on supply chain transparency and responsibility is evident through the adoption of supply chain laws by several member states. Notably, Germany has introduced the Act on Corporate Due Diligence Obligations in Supply Chains, requiring large companies to establish robust risk management systems to address human rights and environmental concerns throughout their supply chains. See our LawFlash on the German Supply Chain Act and additional commentary here. See also our LawFlash on recent French court rulings on the duty of vigilance.

In March 2024, the European Council passed the Corporate Sustainability Due Diligence Directive (CSDDD), signaling a significant, streamlined shift towards corporate responsibility within the EU that will supersede existing supply chain laws. While risk assessment criteria may vary slightly, certain industries and companies perceived as higher risk will face greater scrutiny. Notably, civil liability poses a substantial risk, with NGOs empowered to bring representative actions in member states. Failure to comply with both EU and member state laws may result in filed complaints, significant fines, or exclusion from public contracts, underscoring the importance of diligence in supply chain practices. On April 24, 2024 the European Parliament approved the CSDDD. See our recent LawFlash on the CSDDD.

EU Regulatory Developments: Defining European Resilience

The EU has implemented a series of regulatory updates aimed at bolstering key sectors and ensuring competitiveness including within the automotive industry outside of EU competition law. These updates encompass a range of critical areas, including semiconductor development, raw materials sourcing, cybersecurity, data access requirements, and artificial intelligence (AI) deployment. With a focus on enhancing supply chain resilience, fostering innovation, and addressing emerging technological trends, these regulations are poised to significantly impact automotive companies operating within the EU market:

  • European Chips Act: Aims to boost semiconductor development and investment within EU member states, addressing supply shortages and ensuring the security of supply; it encourages large-scale development of cutting-edge semiconductor technologies.
  • Critical Raw Materials Act: Addresses materials shortages by setting benchmarks for materials extraction and diversifying sourcing; aims to reduce dependency on non-EU sources and strengthen the EU’s raw materials sector.
  • Cyber Resilience Act: Introduces mandatory cybersecurity requirements for products commercialized in the EU market, potentially changing business processes for manufacturers; requires manufacturers to integrate cybersecurity throughout the product lifecycle.
  • European Data Act: Expands data access requirements for connected devices, including vehicles, impacting data sharing practices within the automotive sector; presents challenges for compliance and protection of trade secrets.
  • EU Artificial Intelligence Act: Regulates the deployment of AI systems, including those used in vehicles, with varying compliance requirements based on AI system risk levels; creates implications for AI-driven automotive technologies and manufacturers’ obligations.

Standard Essential Patents: Anticipating IP Licensing Reforms

In April 2023, the European Commission introduced a proposal aimed at reforming the licensing process for standard essential patents (SEPs) within the EU. This proposal seeks to address SEP licensing negotiation transparency and would see the EU Intellectual Property Office armed with increased powers to provide nonbinding determinations regarding royalty rates, maintain SEP registers and databases and ultimately, act as a mediator for licensing disputes.

Since the proposal’s publication, there has been significant pushback by industry participants regarding the proposal’s one-size-fits-all approach, potential disproportionate burdens and increased costs, and the proposal’s likely impact on the attractiveness of the EU for standardization efforts (to name but a few). In February 2024, the European Parliament voted in favor of the proposal, despite the extensive industry concerns. The proposal will now undergo review by the Council of the European Union.

Labor Developments: Compensating WC Members in Germany

In 2023, a German federal court ruling reduced the flexibility in compensating works council (WC) members, who, like US union members, play a significant role in labor relations. This prompted automotive companies to decrease their compensation, which in turn led to new legislation by the German government to provide more leeway in compensating WC members. Similar shifts in labor dynamics within the German automotive industry are expected to continue.

Sustaining Compliance with EU Automotive Industry Regulations

For automotive industry companies operating in or connected to the EU, these regulatory developments carry potentially substantial legal implications. Compliance with EV subsidy regulations, antitrust measures, and supply chain laws is paramount to avoid penalties and maintain market competitiveness. Moreover, impending directives like the EU’s CSDDD and the AI Act will further shape the regulatory landscape, necessitating adaptation by industry players.

As the automotive industry works through these regulatory shifts, collaboration with legal experts and counsel becomes imperative to ensure compliance while fostering innovation and sustainable growth. By staying abreast of evolving regulations and proactively addressing legal challenges, automotive companies can position themselves for success in an increasingly dynamic and competitive EU market landscape.