Impact of the Carbon Correction Factor on Foundries: The Automotive Industry's Big Slowdown

A number resonates with increasing force in the corridors of the Italian metalworking industry: 238,000 cars. This is the estimated production by Anfia for 2025 in our country. This figure brings the national automotive industry back to the levels of the mid-1950s. The difference is substantial: back then, we were on the threshold of the economic miracle; today, we find ourselves immersed in a multidimensional crisis fueled by relocations to Morocco, Algeria, Turkey, and Eastern Europe, and by the structural collapse of the domestic market.

The new regulatory review package presented by the European Commission in December 2025 is part of this already critical scenario. The most significant element concerns the partial rethinking of the definitive ban on internal combustion engines scheduled for 2035. The fundamental change consists of moving from a mandatory 100% reduction in emissions to a 90% target. That 10% margin represents much more than a mathematical adjustment: it constitutes an industrial policy choice.

The future of internal combustion engines after 2035: the Carbon Correction Factor

The so-called Carbon Correction Factor introduces the concrete possibility of continuing to register vehicles with traditional propulsion systems beyond the crucial 2035 deadline. The condition is twofold: the use of carbon-neutral fuels (e-fuels or next-generation biofuels) or the use of steel from sustainable production chains rooted in Europe.

From the perspective of foundries and the entire component supply chain, this potentially represents a breath of fresh air. Engine blocks, cylinder heads, and complex components specifically made for internal combustion engines could maintain commercial relevance well beyond the time horizon that seemed sealed. The impact of the Carbon Correction Factor on foundries translates into an extension of the market window for the production of die-cast components for traditional automotive applications.

The issue, however, presents a complexity that goes beyond the regulatory perimeter. The real obstacle to European competitive horizontality lies in the structural advantage accumulated by China. Beijing has consolidated not only its dominance over strategic raw materials and refining processes—controlling 90% of the entire battery supply chain—but also has a domestic market of 32 million vehicles that generates economies of scale impossible to replicate in Europe.

This creates a paradox that is difficult to resolve: while Europe is loosening its electricity requirements to offer its manufacturers room for maneuver, the latter are already burdened by regulatory uncertainties and structural costs that make it difficult to compete with those who have been able to develop under significantly more favorable conditions.

European Competitive Asymmetry in Automotive Die Casting

Numerical data provides a clear picture of the situation. According to an analysis commissioned by CLEPA, the European Association of Automotive Component Manufacturers, approximately 75% of the value embodied in vehicle components sold in the EU is currently generated within Europe. This balance, however, is rapidly changing. Batteries, semiconductors, and other key technologies are increasingly sourced from non-European suppliers.

European manufacturers operate in conditions of marked competitive asymmetry, facing a cost disadvantage ranging from 15% to 35% compared to competitors outside the EU. The causes of this gap are multiple and interconnected:

• Energy and labor costs higher than the global average;
• More burdensome regulatory and administrative burden;
• Industrial support policies that are less effective than those of international competitors.

Competitors from the United States, China, and other emerging economies, on the other hand, benefit from lighter cost structures and significantly more robust public support.

The consequences of this imbalance are tangible and worrying. Components that account for approximately 60% of the value of an internal combustion engine vehicle and up to 70% of the value of a battery-electric vehicle are exposed to a real risk of partial or total production relocation outside of Europe.

Without timely corrective measures, the Union's value generation capacity could decline by nearly a quarter by the end of the decade, resulting in the loss of 350,000 jobs and the consequent weakening of both climate objectives and the continent's industrial sovereignty. This scenario directly impacts automotive die-casting, a sector already severely impacted by declining production volumes.

What to do: technological neutrality and support for manufacturing

The regulatory review proposed by the European Commission introduces an important principle: the energy transition can be structured through a variety of technological solutions. Plug-in hybrids, electric vehicles with range extenders, and vehicles powered by renewable fuels will be able to complement full electrification in a technology-neutral approach.

This opening, while significant, is not sufficient to reverse competitive dynamics. Strengthening European businesses requires structural interventions on multiple fronts:

• Availability of reliable and affordable energy;
• Streamlining authorization procedures;
• Simplification of the regulatory framework;
• Provision of appropriate financial instruments;
• Substantial investments in strategic technologies.

Until these interventions produce measurable results, it will be essential to maintain policies aimed at supporting manufacturing and applied research. These measures are necessary to preserve skilled employment and the European industrial base, which competes with competitors capable of exploiting lower production costs and generous public subsidies. These advantages allow them to gain market share in the Union through direct imports and nearshoring strategies in areas bordering Europe.

The "local content" proposal to protect the European supply chain

Particularly significant are measures aimed at encouraging the use of components produced within the Union. The proposal developed by Clepa stipulates that the "Made in Europe" designation for a vehicle be subject to compliance with specific requirements:

• Completion of the final assembly phase within the European Union;
• European component content (excluding the battery) equal to at least 75% of the ex-works price of the overall componentry;
• Presence of critical components of European origin—including e-powertrains, electrical and electronic systems—according to increasing thresholds over time (50% in 2026, rising to ≥70% in the medium term).

A component should be recognized as European only when its last substantial transformation takes place in the EU. Marginal or purely formal operations should not confer EU origin, ensuring that significant manufacturing activity remains rooted in the EU and limiting competitive pressure from China and other non-European markets.

According to Clepa's assessments, the implementation of these measures would not lead to price increases for vehicles, given that nearly 80% of the components used in cars assembled in the EU already come from local suppliers. Targeted and potentially temporary interventions, based on the principle of local content, could help halt further delocalization, consolidate investments, and safeguard high-value-added jobs, pending the now-essential structural reforms needed to restore systemic competitiveness to European manufacturing.

The future of internal combustion engines after 2035 and the impact of the Carbon Correction Factor on foundries outline unprecedented scenarios, but the stability of the European supply chain will depend on the ability to combine this greater regulatory flexibility with decisive actions to improve overall competitiveness.

Source: In Fonderia – Il magazine dell’industria fusoria italiana