The European Commission yielded to pressure from European automakers on Monday by giving them three years, rather than just one, to meet new CO2 emission targets for their cars and vans.
The EU significantly lowered its cap on automotive carbon dioxide emissions this year, meaning at least one-fifth of all sales by most car companies must be electric vehicles (EVs) to avoid heavy fines. The ultimate goal is for zero emissions in 2035.
Commission President Ursula von der Leyen said after meeting auto sector executives, unions and campaign groups on Monday that the EU executive would propose later this month allowing compliance over three years, rather than in 2025.
Meeting the targets, and avoiding related fines, depends on selling more electric vehicles, a segment where European carmakers lag Chinese and US rivals.
Shares in European automakers, including Volkswagen , Renault, BMW and Mercedes-Benz rose by between 2% and 6% after von der Leyen's comments.
"The targets stay the same. They have to fulfil the targets, but it means more breathing space for industry," von der Leyen told a news conference, adding the proposal will still require approval from EU governments and the European Parliament.
Compliance would now be based on a carmaker's average emissions over the period 2025-2027.
EU carmakers, which have been hit by factory closures and are now bracing for U.S. tariffs, had urged the Commission to grant relief from fines they say could rise to 15 billion euros ($15.7 billion) if their fleets did not meet the limits in 2025.
European auto manufacturer association ACEA says the industry faced unpalatable alternatives, including deep price cuts, reduced production or buying credits from U.S. electric car maker Tesla and Chinese electric vehicle makers.
Volvo Cars, which is majority owned by Chinese EV maker Geely, said last week that companies that had heavily invested to be ready for 2025 should not be disadvantaged by any changes.
"These targets were set several years ago, giving the industry the time needed to prepare, with several mechanisms to support compliance," CEO Jim Rowans said.
Transport research and campaign group T&E described the proposal as an unprecedented gift to the car industry for no commitments.
The EU executive intends to publish its automotive action plan on Wednesday to ensure EU car producers can electrify their fleets and compete with more advanced rivals like Tesla and Chinese producers.