Major Automotive Global Trends July 2026

Global

The UN adopts an international regulatory framework for autonomous vehicles

In July, the United Nations Economic Commission for Europe (UNECE) adopted the first international legal framework for autonomous vehicles, following years in which global regulation lagged behind technological advances in the field. The move comes alongside regulatory progress in China, where autonomous vehicles are permitted to operate legally on public roads.

The new framework establishes harmonised safety requirements for automated driving systems and is supported by major automotive markets, including the European Union, the United States, China, Japan, Canada and the United Kingdom. The regulation is expected to enter into force during the current quarter.

Automated Driving Systems (ADS) are defined as systems that perform the full driving task without human intervention, including steering, acceleration, braking and operation of the vehicle's lights. The framework applies to vehicles at Level 4 autonomy and above.

At the core of the regulation are safety requirements governing the development, approval and operation of automated driving systems. Manufacturers will be required, among other things, to implement a comprehensive safety management system, demonstrate system performance through simulations, track testing and on-road trials, and submit a safety case to regulators showing that the automated driving system does not create an unreasonable safety risk.

The regulation also requires continuous monitoring of vehicles while they are in operation. Safety-related data will be recorded, and system performance will be monitored throughout the vehicle's life cycle. Vehicles will therefore be equipped with a dedicated system for storing automated-driving data.

UNECE requirements state that an automated driving system must achieve at least the safety level of an attentive and competent human driver. At the same time, around 90 additional UNECE vehicle regulations were updated to ensure that existing regulatory frameworks also apply to vehicles without traditional controls, such as a steering wheel or pedals.

The regulation does not automatically authorise driverless vehicles to operate on public roads. Instead, it creates a coordinated international framework on which member states can base national approvals. Harmonised requirements may also reduce the need for manufacturers to develop and validate vehicles separately under different regulatory regimes in each market.

Europe

GSR2 requirements enter into force in July, introducing new safety-system requirements

On 7 July, a new set of mandatory requirements for advanced safety systems entered into force in the European Union for new models of passenger cars and light commercial vehicles registered in the bloc from that date.

The current phase introduces five new requirements: advanced emergency braking capable of detecting pedestrians and cyclists; Advanced Driver Distraction Warning; improved forward visibility; new testing requirements for worn tyres; and expanded requirements for safety glazing. At the same time, automatic emergency braking became mandatory for new trucks for the first time.

The most controversial system is ADDW, Advanced Driver Distraction Warning, which requires an infrared camera to monitor the driver's direction of gaze, blink rate and yawning. The system is active at speeds above 20 km/h, measures how long the driver diverts their gaze from the road towards the screen or speedometer, and issues an audible, visual or haptic warning.

Under the requirements, data processing takes place inside the vehicle, the data is not transmitted externally and is deleted immediately. The system provides a warning only and does not activate the brakes. However, studies indicate a high rate of false alerts, including cases in which blinking is interpreted as fatigue and a break is recommended after a short period of driving. Digital-rights organisations warn that a firmware update or a change in manufacturer policy could enable data collection in the future, even though the systems currently operate locally.

Another change with significant safety implications is the extension of the AEB requirement, which already applied to vehicle detection, to the detection of vulnerable road users, including cyclists. Many manufacturers installed such systems over the past two years in preparation for the rules, while others launched models without them before the 7 July 2026 cut-off date.

While critics argue that the cost of the new equipment is being passed on to consumers, particularly raising the price of lower-cost vehicles, the EU notes that the regulation makes safety systems that were previously offered as expensive optional packages part of standard equipment. According to the European Commission, the measures could save around 25,000 lives by 2038.

The next stage in the timetable is set for 7 January 2029, when heavy trucks will be required to provide improved direct vision to enable better detection of pedestrians and cyclists near the vehicle.

The Spanish government approves an EV incentive programme through 2030

In July, the Spanish government approved a regulatory framework for a new incentive programme called "Auto Plus", designed to promote the purchase of electric and electrified vehicles in the country through the end of 2030. The programme replaces the previous scheme and centralises administration of the grants under the Ministry of Industry and Tourism.

The programme is divided into two funding streams. The first is intended for private individuals purchasing new vehicles or used vehicles first registered in Spain no more than 12 months earlier. The second is open to companies, self-employed individuals and other business entities, and also covers leasing and rental arrangements lasting at least three years.

Grant levels are determined by vehicle category. Private buyers will be eligible for up to €4,500 for electric or electrified passenger vehicles, up to €5,000 for N1 electric commercial vehicles and up to €1,500 for quadricycles. Self-employed individuals and micro-businesses will be eligible for higher limits, up to €6,000 for a passenger car and up to €7,500 for a commercial vehicle. Businesses eligible for support from the EU Social Climate Fund will be able to receive up to €7,000 and €12,000, respectively.

The final grant amount will be determined by several parameters. Battery electric vehicles (BEVs) will receive priority over plug-in vehicles; vehicles priced below €35,000 will receive a higher score; and production in the European Union, including battery production, will increase the level of support.

The programme has a budget of around €400 million and will apply retroactively to purchases made from January 2026. Spain's Minister of Industry stated that there is no intention to increase the budget later and that, in his assessment, it will be sufficient to meet the programme's objectives. Unlike the previous scheme, the new programme does not fund charging infrastructure and does not include an additional bonus for scrapping older vehicles. Another major change is the centralisation of applications through a single online platform, which is expected to reduce processing times from several months to a few weeks.

The European Parliament seeks to streamline approvals for charging infrastructure

In July, the European Parliament advanced a proposal to exempt the installation of fast-charging stations at motorway rest areas from permit requirements. Under the proposal, which was supported by a majority of Members of the European Parliament, charging stations with a capacity of up to 1 MW located on "artificial structures" could be installed without a permit. The proposal remains subject to negotiations and is not yet final.

The proposal forms part of the "European Grid Package", which includes measures to strengthen electricity networks across the European Union. Among other measures, it proposes raising the permit-exemption threshold for small solar installations, energy-storage systems and charging stations from 100 kW to 200 kW. It also proposes limiting processing times to three months for charging stations with a capacity of up to 1 MW and six months for larger installations, with applications not decided within the prescribed period to be approved automatically.

The definition of "artificial structures" remains contested. The green groups behind the proposal want it to include motorway service areas, an interpretation that could significantly expand the deployment of charging infrastructure along Europe's road network.

The Chair of the European Parliament's Industry and Energy Committee said the framework is intended to reduce Europe's dependence on expensive imported fuels while maintaining environmental standards.

Industry coalition calls on the EU to simplify state-aid rules for cleantech manufacturing plants

A coalition of automotive and industrial companies, investors and organisations has sent an open letter to the European Commission calling for changes to state-aid rules for cleantech manufacturing. The signatories are seeking a predictable subsidy framework that would support investment in battery plants and other green technologies in Europe ahead of the publication of the Electrification Action Plan. They argue that Europe has yet to establish a comprehensive battery value chain within its borders.

The signatories welcome the EU's recent industrial and environmental initiatives, including the "Industrial Accelerator Act", which directly affects the automotive industry. However, they argue that the current aid rules do not provide effective support for the planned expansion of Europe's cleantech industry.

Their criticism focuses on the EU's state-aid framework. According to the signatories, existing financing instruments for large-scale manufacturing projects are too complex and do not provide businesses and investors with sufficient planning certainty. In particular, they point to the lack of reliable production subsidies that can be factored into investment decisions before new plants are built.

The organisations propose allowing time-limited production premiums for strategic green technologies, including fixed grants per unit of output, for example per kilowatt-hour of battery cells, per kilogram of renewable hydrogen or per kilometre of high-voltage cable. They argue that the new rules should not replace existing European funding programmes, but rather complement future instruments, including the planned European Competitiveness Fund.

The proposals come amid growing international competition for investment in cleantech manufacturing. While the European Union is updating its industrial-policy tools, other economic regions, led by China, operate extensive funding programmes, including support for activities in Europe.

UK

The British automotive industry calls for changes to EV uptake targets

In July, the Society of Motor Manufacturers and Traders (SMMT) called on the government to review its policy following a survey of senior automotive-industry executives. The respondents represent 98.4% of UK vehicle manufacturing output by value.

All executives surveyed said the UK's 2030 electrification targets do not reflect current market conditions. Under government policy, sales of new internal combustion engine vehicles are to be fully phased out by 2035. Interim targets have also been set, requiring electric vehicles to account for at least 33% of each manufacturer's new-vehicle sales in 2026, rising to 38% in January 2027. In practice, electric vehicles currently account for only around 23.9% of passenger-car sales and 9.5% in the light and heavy commercial-vehicle segments.

Industry executives warn that the targets require manufacturers to offer substantial discounts on electric vehicles in order to meet the quotas. They say this is eroding residual values in the used-vehicle market and could undermine industrial investment in UK vehicle plants.

The SMMT stressed that the industry continues to support the goal of carbon neutrality, but argued that a £15,000 fine for each vehicle above the permitted quota could place considerable pressure on manufacturers' cash flow.

The SMMT is calling for VAT on new electric vehicles to be reduced to 10% for three years, for the 20% VAT rate on public charging to be aligned with the 5% rate applied to home charging, and for manufacturers to be allowed to carry forward regulatory credits accumulated in previous years without restriction.

According to the SMMT, without targeted incentives for private consumers, the policy could reduce the availability of affordable models, harm employment and weaken the UK's position as a vehicle-manufacturing hub.

Reports based on leaks from government departments suggest that the UK is considering easing its interim targets for low-emission vehicle uptake. According to internal drafts, the final 2035 target to end sales of new internal combustion engine vehicles is expected to remain unchanged, while the 2030 interim target for zero-emission vehicle uptake could be reduced to 50%, compared with 80% under the original plan.

The possibility of easing the targets has prompted opposition from groups and infrastructure bodies in the electric-vehicle sector. Charging-network organisations have warned that changing the interim targets during 2026 could reduce private investors' willingness to commit capital to the sector.

They argue that a policy change would undermine investor certainty just as the number of active charging points in private homes and workplaces across the UK has exceeded 1.4 million installations.

The UK government approves a mileage-based tax on electric vehicles from 2028

In July, the UK government approved a mileage-based tax on electric vehicles, calculated according to the number of miles actually driven. The eVED, Electric Vehicle Excise Duty, will take effect in April 2028 and is intended to compensate the government for declining fuel-tax revenues as the market shifts towards electric vehicles.

Under the plan, owners of battery electric vehicles will be charged 3 pence per mile, while owners of plug-in vehicles will pay 1.5 pence per mile. The charge will be added to the standard vehicle excise duty, while electric commercial vans will be exempt.

According to the government, the model is intended to ensure that electric-vehicle drivers also contribute to funding road infrastructure, as drivers of internal combustion engine vehicles do through fuel taxes. Over the next decade, the government plans to invest more than £7.5 billion in zero-emission transport, partly funded by eVED revenues.

Following a consultation held between November 2025 and March 2026, which received more than 5,000 responses, the government dropped its original requirement for odometer checks on new vehicles that had not yet undergone their first annual vehicle inspection. Instead, electric-vehicle owners will declare the odometer reading and submit an estimate of future mileage when renewing the vehicle licence. A voluntary automatic-reporting option through the vehicle's built-in connectivity systems will also be offered.

UK industry bodies have opposed the tax. The British Vehicle Rental and Leasing Association (BVRLA) argued that increasing the cost of ownership would make the transition to electric vehicles more difficult. An electric-vehicle drivers' organisation also warned of unexpected costs and a loss of public confidence during the electrification process.

USA

Congress to consider bill banning the entry of Chinese vehicles from neighbouring countries

In response to the Canadian government's decision earlier this year to allow the import of up to 49,000 Chinese-made vehicles at a reduced tariff of 6.1%, several members of Congress from Michigan introduced a bill in July titled the "Protect America from Chinese Vehicles Act".

The bill seeks to prohibit the physical entry into the United States of connected vehicles manufactured directly or indirectly by automakers owned by, or linked to, countries designated as "foreign adversaries", primarily China.

If approved, drivers of Chinese-made vehicles registered in Canada or Mexico would not be allowed to enter the United States in those vehicles. The measure is aimed primarily at software-defined vehicles (SDVs), which are capable of transmitting data to remote servers, and therefore has implications for both trade and security. The proposal illustrates the deepening tensions between the United States and China, alongside calls from industry executives to promote cooperation through joint ventures.

Consumer research: US vehicle prices remain high as buyers shift towards lower-cost models

A periodic report published in July by Cox Automotive's research division points to a change in consumer behaviour in the US automotive market during the first half of the year. According to the report, persistent macroeconomic pressures are increasing consumer resistance to high prices and gradually shifting demand towards more affordable market segments.

The report notes that changing purchasing patterns have so far moderated inflationary pressure and kept the industry's average transaction price slightly below the $50,000 mark. The Industry Average Transaction Price (ATP) stood at $49,758, up 0.6% from the same period a year earlier and 0.4% from May. The figure remained below the record of $50,609 set in December 2025.

The Manufacturer's Suggested Retail Price (MSRP) averaged $51,654. The annual rate of increase in list prices moderated, while inflation in the US automotive market remained below the historical annual average of 3.4%.

Despite price pressures, the sales trend remained positive. The seasonally adjusted annual rate (SAAR) rose to 16.5 million units, the highest level since the beginning of 2026, while total sales volume increased by 7.6% compared with the same period a year earlier.

According to the report, consumers are beginning to treat economic volatility as an ongoing condition. Instead of waiting for interest rates to fall or for political and regulatory uncertainty to ease, they are adjusting their budgets and vehicle choices to current conditions.

This change in consumer behaviour is shifting sales towards models that offer better value for money. Sales of subcompact SUVs, with an average transaction price of around $31,000, increased by more than 23% compared with a year earlier, helping to moderate the industry's average transaction price.

At the same time, demand weakened for premium and luxury models with high profit margins, as well as for full-size pickups with average prices above $66,000. As a result, several of the manufacturers' most profitable segments stagnated.

The report also points to a change in manufacturers' behaviour. Rather than being drawn into a price war that would erode margins, they are limiting production volumes in order to protect profitability.

The report also identifies a persistent gap in the US electric-vehicle segment. The average transaction price of electric vehicles declined year on year for the sixth consecutive month, to just over $52,000, a 4.5% annual decrease. Incentives and discounts in the electric segment reached 13.0% of the transaction price, almost double the industry average of 7.0%.

The US electric-vehicle segment recovers in Q2, but remains well below its peak

The second quarter of 2026 recorded the highest US electric-vehicle sales since the federal subsidy programme was discontinued. Around 247,000 battery electric vehicles were sold between April and June, up 14.2% from the previous quarter but down 20.5% from the same quarter a year earlier. According to estimates, higher petrol prices following the war in the Gulf contributed to the recovery.

The figures indicate some stabilisation after the decline in demand that began in the first quarter of 2026 following the expiry of the federal tax benefit in September 2025. Analysts also attribute the recovery to the launch of new models, state-level incentive programmes, including in California, and continued consumer interest.

The leading manufacturer in the segment delivered around 125,000 vehicles during the quarter, more than half of total sales. Another manufacturer recorded a 225% year-on-year increase in electric-vehicle sales following the launch of new models, moving into fourth place in the US market.

Despite the recovery, sales remained well below the peak recorded in the quarter before the subsidy expired. Around 437,000 electric vehicles were sold in that quarter, partly because consumers brought forward purchases to take advantage of the benefit before it ended.

The figures highlight the gap between the pace of electric-vehicle uptake in the United States and in other major markets. While Europe and China continue to support transport electrification through regulation and incentives, the US market currently relies primarily on market forces. BloombergNEF forecasts a record year for global electric-vehicle sales in 2026, alongside a 19% decline in US sales compared with the previous year.

South Korea

South Korean study: EV repair costs after accidents are 43% higher

In July, the Korean Insurance Institute (KIDI) published an actuarial study based on nationwide motor-insurance claims data from the previous 12 months. According to the study, the average repair cost for electric vehicles damaged in accidents is 43% higher than for comparable internal combustion engine (ICE) vehicles.

The researchers identified two main factors behind the higher claims costs. The first is the complex structure of electric vehicles, including the use of large, integrated body castings and battery enclosures incorporated into the vehicle structure in cell-to-pack designs.

According to the study, even minor side impacts can deform the battery's structural enclosure. In such cases, insurers may declare the vehicle a total loss rather than carry out a repair that would be too costly.

The second factor is a shortage of skilled labour. A lack of qualified technicians able to diagnose high-voltage systems at private and independent repair workshops in Korea increases reliance on automaker service centres, raises labour rates and extends average vehicle downtime by 35%.

South Korea tightens emissions standards for heavy commercial vehicles

The South Korean government plans to introduce regulations from 2027 to reduce CO₂ emissions from medium and heavy commercial vehicles, with the aim of accelerating the transition to electric and hydrogen-powered trucks and buses. The requirements will be phased in through 2030: first for heavy trucks and tractor units weighing more than 15 tonnes, then for medium and large buses, and finally for medium-duty and distribution trucks.

In the final phase, manufacturers will be required to reduce the average greenhouse-gas emissions of models in these categories by around 30% compared with a 2021–2022 baseline. Manufacturers that fail to meet the targets may face gradually increasing penalties before the regulation becomes mandatory in 2031.

To encourage the transition to zero-emission commercial vehicles, the government will continue to award "Super Credits" for electric and hydrogen-powered trucks and buses. The draft regulations also include credits for vehicles with internal combustion engines.

Alongside the commercial-vehicle measures, the government is also tightening emissions targets for passenger vehicles. The maximum fleet-average emissions target for passenger vehicles and vehicles carrying up to ten passengers will fall from 70 g/km to 54 g/km by 2030. For vehicles with 11–15 seats, the threshold will fall from 146 g/km to 98 g/km.

A pilot scheme has also been announced under which manufacturers will be able to offset up to 5% of their emissions obligations by generating or using renewable electricity at domestic production sites in South Korea. The government has identified greenhouse-gas emissions management and vehicle fuel efficiency as key elements in reducing transport emissions.

Japan

Toyota CEO leads initiative to align production systems and cooperation among Japanese automakers

Toyota CEO Koji Sato, who also serves as head of the Japan Automobile Manufacturers Association (JAMA), presented an initiative in July to standardise basic components, logistics networks and shared infrastructure across Japan's seven largest automakers: Toyota, Nissan, Honda, Mazda, Subaru, Mitsubishi and Suzuki. The move marks a shift away from the independent and decentralised approach that has characterised the Japanese automotive industry for years.

The initiative comes against the backdrop of expanding vehicle exports from China. In June, China's monthly vehicle exports exceeded 1.06 million units, putting Chinese manufacturers on course to export around 10 million vehicles by the end of 2026.

In Japan, it is estimated that joint development of modular chassis and suspension systems, together with the consolidation of logistics networks, could improve manufacturing productivity, spread development risks and free up capital for investment in areas where gaps need to be closed, including software-defined vehicles (SDVs) and solid-state batteries.

According to reports in Japan's business media, Sato described the initiative in meetings with companies in the domestic supply chain as a "national survival plan" and warned that without change, Japan's manufacturing sector would struggle with structural inefficiencies.

One example raised in JAMA discussions is the production of automotive wiring harnesses. Japan's seven automakers currently require suppliers to produce around 70,000 different wiring-harness variants to meet the individual specifications of hundreds of models. This fragmentation makes factory automation more difficult, increases production costs and consumes additional engineering resources.

Under the new production model proposed by Sato, referred to in the industry as the "Japan Standard", common specifications would be established for raw materials and components that are not visible to consumers, including steel alloys, plastic components, pipes and basic electronic systems.

Senior executives at Nissan and Honda supported the initiative, explaining that cooperation in shared areas could reduce procurement costs and strengthen bargaining power with global raw-material suppliers without compromising brand identity or vehicle exterior design. Smaller manufacturers are expected to benefit particularly from the initiative because they are disadvantaged by their smaller scale. Resources saved in manufacturing processes are expected to be redirected towards the development of advanced software architectures, autonomous-driving systems and fast-charging batteries, areas in which Chinese manufacturers have a competitive advantage.

China

Hainan becomes the first province in China to ban sales of internal combustion engine vehicles

In July, the Hainan government approved a decision under which the province will become the first in China to completely ban sales of petrol- and diesel-powered vehicles by 2030. The move marks a significant shift in the province's transport policy.

The province, which comprises several islands in southern China, plans to gradually reduce sales of higher-emission vehicles and shift all new private vehicles to electric propulsion. Under the plan, the share of "New Energy Vehicles", including electric vehicles, plug-in vehicles and fuel-cell vehicles, is expected to rise from less than 24% today to 45% of all vehicles registered in Hainan by 2030.

The target is more ambitious than the national goal set by China's central government. The plan also includes promoting hydrogen fuel-cell propulsion for heavy trucks, logistics and public transport.

The decision comes amid debate in China over the need to ban sales of internal combustion engine vehicles. Opponents of mandatory phase-out dates argue that the Chinese market is moving towards electrification voluntarily, without the need for government intervention. Hainan's government, by contrast, has chosen to advance the transition through binding regulation.

China to end annual tax exemption for plug-in vehicles in 2027

Plug-in vehicles have been one of the growth engines of China's automotive market and of Chinese vehicle exports to Western markets in recent years. The new decision points to a gradual shift in the government's approach to the segment in the domestic market.

In July, China's Ministry of Finance, State Taxation Administration and Ministry of Industry and Information Technology announced an update to the national Vehicle and Vessel Tax. From 1 January 2027, the annual tax exemption for plug-in vehicles, including extended-range electric vehicles (EREVs), will be abolished. At the same time, the exemption for fully electric commercial vehicles and hydrogen-powered commercial vehicles will be removed, as will the discount for highly efficient internal combustion engine vehicles. The change will apply to both new and existing vehicles.

The Vehicle and Vessel Tax is an annual ownership tax. For private vehicles with engines of 1.6–2.0 litres, the tax ranges from around 360 to 660 yuan, approximately €43–€79 per year, depending on the province. Because the tax is based on engine capacity, fully electric and hydrogen-powered private vehicles will not be affected by the change and will continue to benefit from the exemption under China's tax rules.

China's Ministry of Finance says that tax incentives in several segments have fulfilled their role. The incentives, introduced in 2012, contributed to the growth of the electric, electrified and fuel-efficient vehicle markets, but the government argues that market conditions have changed as these vehicles have achieved high penetration rates. It also argues that plug-in vehicles are now assets of high economic value, and that applying the tax to them will create a more equitable mechanism.

The decision forms part of a broader restructuring of China's subsidy policy for electric vehicles. After years of direct support, the government is gradually reducing financial support for customers. The market share of New Energy Vehicles (NEVs) in China's private-vehicle market recently reached a record of around 63%.

China sets target for NEVs to account for 30% of the national vehicle fleet by 2030

In July, the Chinese government published a national action plan to reduce CO₂ emissions from transport, under which New Energy Vehicles (NEVs) are expected to account for around 30% of the country's vehicle fleet by 2030. The term NEV includes battery electric vehicles, plug-in vehicles, hybrid vehicles and hydrogen-powered vehicles. The plan, published by the State Council, forms part of China's new five-year plan.

To reach the 30% target, the number of lower-emission vehicles will need to more than double within five years. At the end of 2025, China had around 44 million NEVs, representing about 12% of the total vehicle fleet. Around 30 million of these, or approximately 69% of the NEV fleet, were battery electric vehicles.

The plan also covers commercial transport. By 2030, commercial vehicles with alternative powertrains are expected to account for around 25% of the fleet. The government also plans to accelerate electrification of public-sector vehicle fleets and expand the use of zero-emission vehicles in construction and mining, at ports and at airports.

The plan relies on expanding infrastructure, including charging points, battery-swapping stations and refuelling stations for green hydrogen, ammonia and methanol. The focus will be on busy motorways and national transport corridors, where zero-emission transport corridors will be established.

Thailand

Thailand advances broad programme to scrap high-emission vehicles

The Thai government is considering a subsidy programme worth around $710 million to replace higher-emission vehicles with lower-emission vehicles, with the aim of supporting the domestic automotive market and accelerating the transition to greener mobility. Among other measures, the programme is expected to fund the replacement of around 80,000 older petrol-powered commercial vehicles with electric models.

In the first phase, the programme will focus on high-emission vehicles, including taxis, motorcycle taxis, tuk-tuks, minibuses, buses and trucks. The government later plans to extend support to private vehicles through purchase subsidies, low-interest loans and tax exemptions for electric vehicles. A taxi driver replacing a ten-year-old taxi with an electric vehicle could receive a five-year loan with a reduced daily repayment of $15.

The initiative comes against the backdrop of a prolonged slowdown in Thailand's automotive market. In 2024, new-vehicle sales fell to a 15-year low due to high household debt and tighter credit conditions. Pickup sales, which account for more than 60% of domestic production, fell sharply, affecting the supply chain and employment in the industry. Unlike countries that have opted for a rapid transition to electric-only propulsion, Thailand is pursuing a more flexible approach. Alongside electrification, the government also plans to support petrol-powered vehicles compatible with biofuels. Local industry organisations are seeking to make the incentives conditional on domestic production and a high share of locally sourced components, with the aim of translating the subsidies into employment and tax revenue. Implementation of the programme is expected to begin this year.

Israel

Green taxation changes: Ministry of Environmental Protection adds pollution components that could reduce tax benefits for vehicles with "green" powertrains

In July, the Ministry of Environmental Protection published a new document intended to serve as the basis for updating the formula used to calculate the individual green score of vehicle models marketed in Israel for the purpose of determining the green tax benefit. According to its authors, the document, titled "Update to Pollutant Emission Factors from Vehicles in Israel", was prepared following a reassessment and adaptation to the characteristics of road transport in Israel. The main change is the introduction of new pollution variables into the calculation, relating to "secondary" pollution associated also with vehicles using "green" powertrains, including electric and plug-in vehicles, which until now have been placed almost automatically in the lowest pollution groups. The change is consistent with the European trend towards including such emission components, but precedes the Euro 7 timetable in Europe, under which these components will be taken into account for all vehicles sold in Europe from November 2027.

Among other changes, a new pollution component referred to as "wear emissions" has been added. It covers respirable particles released into the air as a result of physical friction between vehicles and the road. The document assigns weight to tyre wear, meaning rubber and synthetic-rubber particles released through contact with the road surface; brake wear, including metal particles and fibres generated through use of the brake pads; and road wear and resuspended dust, including asphalt, concrete and road-dust particles lifted into the air as vehicles pass.

The document also defines a new pollution category referred to as "cold emissions", which calculates the additional pollutant emissions produced immediately after a petrol engine is started, when the engine and emissions-control systems have not yet reached an effective operating temperature. This category is particularly relevant to plug-in vehicles, in which the petrol engine may operate for short periods and switch off before reaching its normal operating temperature.

According to estimates, if the new components are given significant weight in the final formula, which has not yet been published, they could make it more difficult for many electric and plug-in models to achieve a favourable green score, thereby reducing the green tax benefit they receive. However, the source of the data for the new pollution components remains unclear, as most manufacturers have not yet published these data.