The European Union plans to create a new category of compact electric vehicles with more flexible technical requirements than full-size electric vehicles, aiming to reduce manufacturing costs and compete with the Chinese.
The European Commission, the bloc’s executive body, plans to publish a preliminary proposal soon, with the new “E car” (electric car) category to be launched in the coming years, after approval by the main institutions. The proposal must define the class based on engine size, weight and displacement. European Union member states will also discuss a tax exemption mechanism for the new class of vehicles.
Until now, the European Union required electric vehicles to be equipped with systems to detect driver drowsiness, keep the vehicle in the lane and signal sudden stops. These requirements, designed for long-distance travel, contributed to higher costs.
“The overall configuration of the vehicle will be of a lower level, which will reduce costs because the vehicle will be less complex,” said Beatrix Keim of the Automotive Research Center in Germany. Sales prices for these cars are expected to fall between 10 and 20 percent, remaining in the range of 15,000 to 20,000 euros ($17,500 to $23,200).
The European Union imposes import duties of up to 45.3% on electric vehicles made in China. The new classification will allow European car manufacturers to better compete on price. This will be a major advantage for European manufacturers of compact electric vehicles, including Germany’s Volkswagen, European multinational Stellantis and France’s Renault.
The share of Chinese automakers in the European auto market reached 7% in the July-September quarter this year, double from the previous year, according to a study by German company Schmidt Automotive Research. Considering only electric vehicles, the share of Chinese automobile manufacturers rises to 12%, compared to 9% the previous year, with BYD in the lead.
Incentives such as development grants and tax credits for the electric car category will likely be conditional on production within the European Union. Such conditions would mean that BYD, which operates a factory in Hungary, would be the only Chinese automaker to benefit from these benefits.
In Japan, ultra-compact kei cars are limited by vehicle size, emissions and other attributes. The category accounted for 35% of new cars sold in the country in 2024. The European Union has previously criticized the category in Japan, calling the segment a non-tariff barrier.
The new classification will affect the strategies of Japanese automakers focused on kei cars. They will be able to export certain models to Europe without any specification adjustments.
Compact cars suitable for everyday urban use are also attracting attention in the United States. Last Wednesday, US President Donald Trump announced that he had asked Transportation Secretary Sean Duffy to approve domestic production of “small cars.”
The announcement opened the possibility for Japanese cars, long criticized for being too specialized for export, to be accepted into the American market.
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