The European Commission is on the move to bring in a new breed of small electric cars that will reduce the manufacturing expenses and enhance priceusiveness. This is a shift, with Chinese EV brands taking over European markets, with lower priced models that most European companies have had trouble competing with.
The new proposal will be a new category of small EVs, which will be defined by size, weight, and engine power. The vehicles will be city-oriented and contain fewer technical demands compared to the usual electric models.
Stripped-Down Features to Cut Costs
Current EU rules require features such as drowsiness detection, lane assist, and sudden stop warnings. These systems, designed for highway use, increase production costs. The new EV category will remove some of these rules for compact vehicles.
The Commission expects this change to lower prices by 10% to 20%, targeting a price range between €15,000 and €20,000. Member states are also considering tax benefits for vehicles that meet the new classification.
European Carmakers Prepare Budget Models
Volkswagen, Renault, Stellantis, and Ford are among the manufacturers expected to benefit. Volkswagen’s ID.Polo, set for release in 2026, will be priced around €25,000. A smaller model, the ID.1, is expected in 2027 and will aim for a lower price.
Renault plans two compact models based on its 4 and 5 platforms. These will be built on the Ampere EV architecture. Ford has partnered with Renault on this project. The vehicles will be produced in northern France, with deliveries expected in 2028.
Governments are still discussing possible tax exemptions for compact EVs. The focus is on keeping vehicles affordable while supporting local production and supply chains.
Chinese EV Presence Grows in EU Market
Chinese automakers have doubled their market share in Europe year over year, reaching 7% between July and September 2025. EVs now make up 12% of total car sales in the region. Brands like BYD are expanding quickly and selling at lower prices than most Western brands.
To offset price differences, the EU has set tariffs of up to 45.3% on EVs made in China. Still, some Chinese companies are shifting production to Europe to meet future subsidy rules and avoid tariffs.
BYD already runs a plant in Hungary and plans to open another in Turkey next year. GAC builds its Aion V SUV in Austria through a contract with Magna. The Commission has not confirmed whether contract manufacturing counts as local production under new rules.
Compact EV Push May Open New Global Markets
Great Wall Motor is looking at factory sites in Hungary and Spain. The company wants to produce 300,000 vehicles a year in Europe by 2029. It faces challenges after 2024 sales fell by 41% under its Ora brand.
The compact classification could also create openings for Japanese carmakers. Their small models, similar to kei cars, were not approved under past EU regulations. In the US, President Donald Trump has asked for a review of domestic “tiny car” production, which may allow Japanese exports in that segment.
