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Europe’s Challenge on EVs, Sustainable Investment Regulation, and Competitiveness
The European Union continues to show admirable ambition: positioning itself as a global leader in the green transition and pushing for a sustainable, competitive economic model.
Two of its flagship initiatives—the transition to electric vehicles (EVs) and the development of Sustainable Investment regulations—are emblematic of this new direction.
Yet, as Mario Draghi’s recent report on European competitiveness warns, good intentions alone are not enough. Europe’s chronic slowness, bureaucratic complexity, and lack of long-term industrial vision are undermining these efforts, risking both economic strength and public support.
EV Transition: Strategic Necessity, Industrial Weakness
The move towards electric vehicles is essential to achieving Europe’s 2050 climate goals. The targets are bold: a 55% cut in emissions from new cars by 2030 and a complete phase-out of internal combustion engines by 2035.
Yet Europe has fallen behind. China had become the dominant player, accounting for over than 50% of global EV sales and producing more than 20% of all EVs purchased in Europe in 2023. Chinese brands like BYD and SAIC are growing rapidly, and China is exporting EVs that are, on average, 20% cheaper than their European counterparts.
The EV value chain—especially battery production—is increasingly controlled by Asian players. Meanwhile, European battery projects are delayed, underfunded, or at risk of failure, as seen with Northvolt’s troubles and the fragile gigafactory pipeline across Europe.
Without decisive support for internal manufacturers and supply chains, Europe’s auto industry risks deindustrialisation, with strong social costs, especially in car-dependent regions like Central and Eastern Europe.
Sustainable Investment Regulation: Complexity at the Expense of Impact
The EU’s push on sustainable finance—through the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD)—was born from a correct strategic intention: to bring transparency, accountability, and clarity to the sustainable transition.
Initially, these regulations aimed to steer capital towards sustainable activities, improve disclosure by corporations, and embed environmental and social risk management into business models.
However, the execution has been far from smooth. Rather than clarity, market participants face layers of overlapping, sometimes contradictory requirements. Reporting obligations under CSRD have proven to be cumbersome and costly, and the application to smaller enterprises could result challenging, similarly the CSDDD’s extensive due diligence requirements have added layers of legal uncertainty and administrative burden.
The situation became so difficult that the European Commission itself had to propose the “Omnibus Directive” in early 2025 to freeze, postpone, and simplify several elements of CSRD and CSDDD, recognising that the system risks suffocating businesses rather than empowering them.
Visible consequences
In the first quarter of 2025, Europe registered its first net outflows from investment products classified as ESG or Sustainable, according to Morningstar.
Investors, overwhelmed by regulatory uncertainty, operational complexity, and excessive bureaucracy, are losing confidence in a market that was supposed to be the backbone of the green transition.
Instead of creating a competitive advantage for European finance and corporates, the current regulatory framework risks turning sustainability into an administrative burden.
The same bureaucratic inertia and excessive complexity that Mario Draghi criticises in his competitiveness report are clearly at play in the field of sustainable finance as well. A similar, if not even more clear example, is the case of the ESG Rating Providers Regulation.
Once again, the original objective—to bring greater transparency to methodologies and data flows, both for the market and the rated issuers—is entirely legitimate and necessary. It is equally sensible to aim at ensuring that only serious, credible players with robust data models operate in this critical segment.
However, when examining the detailed requirements of the regulation, it becomes evident that its structure disproportionately favours large, established firms, in a market that is already experiencing rapid consolidation.
And guess what – The dominant players are not European—they are primarily based in the United States. Thus, yet again, a regulation built on good intentions risks penalising European competition and empowering external actors, undermining Europe’s strategic autonomy in a key emerging industry.
Rethinking the How, Not the Why
Draghi’s report does not challenge the EU’s green agenda—it reinforces it. However, the report is also a warning: if Europe does not radically simplify and accelerate implementation, it will lag behind. A new approach is urgently needed: one that favours speed, simplification, and industrial resilience over bureaucratic layering. This is especially crucial in a geopolitical context defined by rising protectionism and industrial consolidation. The US and China are reinforcing their manufacturing bases; Europe must do the same or risk irrelevance.
History will not judge intentions. It will judge outcomes.
This article first appeared on Investment Week
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