Brussels, March 6, 2026 – The European Commission today formally proposed the Industrial Accelerator Act (IAA), a sweeping regulatory framework designed to bolster European industrial autonomy and stimulate demand for low-carbon products manufactured within the continent. The initiative aims to increase the manufacturing sector’s contribution to the EU’s Gross Domestic Product from 14.3% in 2024 to 20% by 2035, according to the Commission’s proposal.
Central to the IAA is the establishment of stringent criteria for vehicles to qualify as “Made in EU,” intended to shield the European automotive supply chain from competition from Asia and North America. These regulations will apply not only to battery electric vehicles but also to plug-in hybrid and fuel cell vehicles, influencing access to subsidies, bonuses, and public procurement tenders.
The core of the new incentive scheme for European cars lies in the definition of “Made in EU.” To be considered community-based, a vehicle must meet specific requirements related to design and production. These include final assembly within the European Union, a component cost ratio of at least 70% for parts produced within the EU (excluding the battery), and a minimum of 50% European content for electric motor components and advanced technologies like lidar, radar, sensors, electronic control units, and infotainment systems.
Battery components are also subject to strict rules. The battery must contain at least three key components of EU origin – including the cells – and at least five specific components related to the cathode and anode, including the cathode active material and the Battery Management System (BMS). The initial draft of the legislation had required four key battery components of EU origin.
To incentivize the production of smaller electric vehicles, the IAA introduces “supercredits.” Each vehicle meeting the requirements will have a coefficient of 1.3 instead of 1 in the calculation of the manufacturer’s fleet emissions. To qualify, the manufacturer must guarantee EU assembly and meet the 70% component threshold or the specific battery requirements.
A flexibility clause, referred to as the “85% rule,” is also included. This allows a manufacturer to request that their vehicles be considered compliant for 12 months if they can demonstrate that at least 85% of the cars they registered in the previous year were assembled within the EU.
The proposal has already drawn accusations of protectionism. However, the Commission emphasizes that the new proposal aligns with the recommendations of the Draghi report. A key principle is reciprocity: content originating from partner countries with which the EU has established free trade agreements or customs unions will also be considered of “EU origin.”
for new foreign investments exceeding €100 million, a minimum level of 50% European employment is required. The IAA also introduces conditions for major investments in strategic sectors where a single third country controls more than 40% of global manufacturing capacity, requiring such investments to create high-quality jobs, drive innovation, generate value through technology transfer, and comply with local content requirements.
The Commission’s proposal comes in response to a geopolitical landscape characterized by the “weaponization” of economic dependencies and a decline in the manufacturing sector’s share of the EU’s GDP, falling from 17.4% in 2000 to 14.3% in 2024. The IAA also aims to speed up and simplify manufacturing projects through a single digital permitting process for Member States.
