The “made in EU” supply chain challenge

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“Made in EU” targets could massively impact how automotive OEMs and suppliers handle procurement. The European Commission’s proposed Industrial Accelerator Act (IAA) would introduce new thresholds for public procurement and subsidy eligibility for electric vehicles (EV). The current proposal stipulates that at least 70% of electric, hybrid and fuel-cell vehicles components’ value – excluding batteries – would have to be made in the EU for manufacturers to benefit from public incentives or public contracts for purchasing, leasing or renting these vehicles.

The time to get ahead is now. Advancing digital supply chain maturity today has immense benefits for automotive OEMs and suppliers, regardless of how the proposed regulations come to pass. A more transparent, resilient and sustainable supply chain is an ever-more crucial competitive advantage, not only for adapting to changing regulations and customer requirements but also for weathering increasing disruptions and mounting volatility.

A new challenge and new uncertainty for European automotive companies

Uncertainty remains around how the proposed local-content thresholds will be calculated and what will finally count as “made in EU.” Industry groups are pushing for countries such as the UK, Turkey and Morocco to receive targeted exemptions because their automotive value chains are closely integrated with those of the EU27. However, as of September 2026, a strict definition of “made in EU” seems more likely.

A strict 70% “made in EU” local-content requirement poses a distinct yet manageable challenge for both OEMs and suppliers operating in the EV space. For OEMs, the main challenge in the short term will be to gain and maintain transparency to fulfill the new regulation for the mixed sourcing footprints of parts, components and modules in their EV supply chains. More strategically, OEMs will have to determine how to optimize their EU-content portfolio on a vehicle level and to realize this optimized mix in their sourcing decisions.

Meanwhile, automotive suppliers will have to comply with new customer transparency requirements in the near term or risk being excluded from ongoing sourcing decisions. The larger challenge for suppliers will be to understand first how they contribute to an OEM’s mixed EU-content portfolio, and then the costs and feasibility associated with rapidly increasing that contribution if asked to do so.

Six steps for designing a competitive inbound supply chain network “made in EU”

Building a truly competitive supply chain means moving beyond isolated cost-cutting measures and rethinking your network from the bottom up as “made in EU.” To start doing this, automotive OEMs and suppliers can follow a structured six-step approach.

Six steps

1. Establish network transparency

A clear view on inbound sourcing is necessary for the kinds of targeted yet big-picture optimizations that will help OEMs meet the 70% local-content threshold on the vehicle level, with the support of their suppliers. Real transparency comes from knowing which data to collect and how to enrich it with your teams’ firsthand feedback on internal processes, systems and ways of working.

2. Set up a digital twin

Modeling your network in its current state – plants, suppliers, transportation routes, material flows and so forth – creates a foundation for both accurate and efficient redesign, as well as for scalable and continuous analysis. This is invaluable whenever planning assumptions or customers’ transparency requirements change, or whenever new regulations cause uncertainty.

3. Calculate the baseline

Your baseline brings together all as-is costs and KPIs, including value creation, production footprint, part values, throughput volumes, logistics costs, production-related cost drivers and current regional content exposure. This baseline will help you identify where your operations are most vulnerable to possible EU local-content requirements.

If you’re an OEM, the baseline is where you identify your current exposure (e.g., on a vehicle/plant basis) as well as potential levers for optimizing your mixed EU-content portfolio (e.g., on a part-family basis).
As a supplier, this is where you comply with new transparency requirements set by your customers while assessing your vulnerability to the minimum EU content targets that customers could potentially set.

4. Develop scenarios

With the right data and models in place, and your current baseline clear, you’re ready to develop scenarios. Scenario-based planning helps you anticipate not only regulatory changes but also other supply-chain constraints and disruptions by letting you test out multiple plausible futures.

If you’re an OEM, develop inbound network scenarios for all parts, components and modules of a specific EV while considering dimensions like:
- Binary sourcing requirements: e.g., component X must be EU-local
- Specific part-family targets: e.g., 90% for seats or 20% for electronics
- Mixed minimum EU content targets for all suppliers: e.g., 70% for all suppliers
If you’re a supplier, focus on the supply chain of the specific part, component or module that you deliver to your customer. Consider what happens to production costs, logistics costs, CAPEX and emissions when you comply with different types of customer requirements:
- Hard EU27 requirement: Component must meet the strictest definition of local content – this is important to know in case an OEM needs to retain flexibility for sourcing electronics or other difficult-to-localize categories globally.
- Soft EU27 requirement: The local-content threshold includes affiliated non-EU27 countries, which could happen if the “made in EU” regulation is eased.
- Best-cost requirement: Best-cost country requirement for the component – this is important when an OEM has flexibility for your given part family.

5. Quantify and evaluate effects

Assess each scenario using the same criteria. How would redesigning your supply chain in this way impact your EU content exposure; production and logistics costs; CAPEX; lead times; risk and sustainability? The goal is not one abstract target network but rather a comparative, decision-ready matrix of quantified trade-offs and feasible measures. OEMs assess each scenario strategically and determine overall content compliance and cost on a vehicle level, whereas suppliers evaluate tactical sourcing scenarios before negotiating with a customer’s purchasing department.

6. Recommend action

The final step is to translate analysis into a clear management recommendation grounded on business cases, realization timelines and decision logics. It is best practice to prepare a strategic management decision based on well-defined assumptions whenever a new regulation has been proposed. This allows for the swift decision-making that European OEMs and suppliers need to retain their positions in a highly competitive market.

The importance of acting early

For European automotive OEMs and suppliers, waiting to see how the “made in EU” regulations pan out is a risky move. The companies that act early will understand their exposure, know their strategic and tactical options and be in a better position to adapt. It is important to distinguish between simply complying with the “made in EU” regulation and making a sound economic decision that accounts for all relevant factors like cost, lead-time, risk and sustainability. In times of uncertainty, early transparency and scenario-based network design are more than planning exercises. They are key instruments for competitiveness, risk mitigation and long-term supply chain resilience.

Author

Andreas Weber

Vice President
4flow