Germany and France have reached a deal to protect Europe's automotive industry, the countries said in a statement Friday.

The plan aims to cut CO2 emissions and support the development and construction of electric cars in Europe, the statement added.

"Our shared ambition is clear: to successfully transform our automotive industry while maintaining our climate ambition and ensuring that the cars of the future are produced in Europe," the countries said. 

The pact also includes incentives for investment, research and production.

Leaders welcome agreement

German Chancellor Friedrich Merz welcomed the agreement, describing it as a "good day for car drivers and for jobs in Germany, France and Europe."

"This is an investment signal to industry," he posted on his X account.

French President Emmanuel Macron, for his part, said the agreement shows a "clear ambition to successfully transform" the European automotive industry while upholding Europe's climate goals. 

"We hope that this Franco-German dynamic can swiftly lead to an agreement with our partners, for our jobs and our industry," Macron wrote.

According to a Handelsblatt report, the two leaders have also agreed in principle to require automakers to cut exhaust emissions from new cars by 90% from 2035, without having to offset the remaining 10%, revising the bloc's proposed target.

The pact will need backing from other EU states and the European Parliament to become law. 

Europe's automotive industry faces tough competition from China

European car makers have been struggling to compete with their Chinese counterparts in the electric vehicle market,  resulting in cost-cutting measures.

Lower Saxony Premier Olaf Lies hailed the agreement as a "strong signal" in support of Europe's car industry that protects jobs in the sector.

Lower Saxony is where German automotive giant Volkswagen's headquarters are located, in the city of Wolfsburg.  Lies is also part of VW's supervisory board.

Germany's auto industry faces a deep structural crisis due to intense pressure from Chinese rivals, the transition to electric vehicles (EVs), higher production costs and other challenges.

As Europe's biggest carmaker by volume, VW has the heaviest exposure to overcapacity in its German plants, high fixed costs and its reliance on China.

Edited by: Natalie Muller

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