Honda and Toyota Warn EU's 'Made in Europe' Plan Could Backfire on Carmakers

Japanese and British carmakers are raising alarms over the European Union's proposed "Made in Europe" plan, warning that new local content requirements could restrict their access to the of the bloc's market and potentially backfire on the very industries Brussels aims to protect.

The European Commission's Executive Vice-President for Prosperity and Industrial Strategy Stephane Sejourne is spearheading the "Made in Europe" plan. © Reuters

The draft Industrial Accelerator Act, expected to be published by the end of February, would introduce minimum local European content thresholds in strategic sectors including automobiles, batteries, and defense. Companies failing to meet these requirements could be excluded from public contracts worth 2 trillion euros ($2.4 trillion) - roughly 14% of the bloc's gross domestic product - and from EU funding instruments.

Japanese automakers voice concerns

Honda Europe has expressed strong reservations about the proposal's emphasis on "Made in Europe" requirements. Ian Howells, executive vice-president of Honda Europe, told Nikkei Asia that the company "proposes a cooperative approach under our 'Made with Common Values' principle" rather than the EU's more restrictive framework.

The Japan Business Council in Europe (JBCE), representing over 110 Japanese companies operating in the bloc, has urged the EU to include like-minded countries such as Japan in its economic security and competitiveness strategy. Michiyoshi Toya, JBCE secretary-general, warned that "overly rigid or formalistic definitions of 'Made in Europe' risk failing to capture economic reality and could inadvertently exclude suppliers that are deeply embedded in the European industrial ecosystem."

Toya also cautioned that the rules could reduce competition in public procurement procedures without delivering additional resilience or security benefits. Toyota Motor Europe has similarly called on the EU to maintain existing trade partnerships, including with the U.K. and other like-minded trade agreement partners.

British manufacturers join the pushback

Britain's Society of Motor Manufacturers and Traders has weighed in, arguing that any initiative should treat U.K.-made vehicles - including those produced by Japanese manufacturers such as Nissan and Toyota - as local content. This position reflects the complex web of automotive supply chains that span multiple jurisdictions.

EU's industrial ambitions

A leaked draft of the legislation shows the EU is aiming to raise industry's share of gross value added from 14.3% in 2020 to 20% by 2035. The plan represents Brussels' response to both a surge in subsidized Chinese imports and a long-term decline in Europe's industrial base.

"We want to privilege European companies at a time when they are coming under harsh deindustrialization pressure and allow them to compete on a fair basis when others are highly subsidized," said Gunnar Wiegand, a visiting distinguished fellow at the German Marshall Fund.

However, Wiegand acknowledged the debate, noting that "some argue this is protectionism and economic efficiency considerations should remain the priority."

Internal EU divisions

The proposal has exposed significant divisions within the European Commission and among member states. France has been a strong advocate of the local content rule as a way to support domestic industries, while Sweden, Czechia, and other smaller, trade-oriented economies caution that sweeping local content rules could raise costs and argue that public procurement must retain flexibility to select best-value suppliers.

The debate has also revealed a split within the commission itself. The commission's industry arm, DG Grow, is focused on boosting domestic production and strengthening European champions, while its trade department, DG Trade, is more concerned with the economic security implications and is open to taking a multilateral approach with like-minded nations.

WTO concerns and international implications

Ignacio Garcia Bercero, a senior fellow at Brussels-based think tank Bruegel, argued that the EU should avoid blanket "Made in Europe" requirements. "If the legislation is about massive subsidies and dependencies from China, we should introduce targeted measures in those sectors through amending existing EU rules on investment screening," he said.

Bercero warned that sweeping local content rules could breach WTO obligations and undermine existing trade agreements, sending the wrong signal to partners the EU is seeking to cooperate with. Wiegand of the German Marshall Fund noted that there is a legitimate question over whether like-minded partners should be allowed to bid for procurement contracts, given that they do not pose coercive dependency risks.

Economic context

The EU's push comes amid growing concerns about industrial competitiveness. The bloc's share of global manufacturing has declined from 21% in 2000 to around 15% today, while China's share has grown from 7% to over 30% in the same period. European automakers have also faced increasing pressure from Chinese electric vehicle manufacturers, whose vehicles are often priced significantly below European competitors.

What happens next

The proposal, originally due in December, has been delayed twice and is now expected on February 25. Industry sources suggest that the pushback from Japanese and British manufacturers, combined with internal EU divisions, may lead to a more pragmatic approach in the final legislation.

"Compromises may be possible once the proposal reaches the [European] Council and the parliament," Wiegand said. "It would certainly send a strong signal if the EU would create concrete avenues to strengthen resilience and economic interdependence between partners who share common values."

The outcome of this debate will have significant implications not just for Japanese and British automakers, but for the broader question of how the EU balances its desire to protect and strengthen European industry with its commitments to open markets and international trade partnerships.