Electric push tests Europe's political realities
XLU•Europe's goal of expanding electricity's share of final energy consumption to around 46% by 2040 faces challenges from dependence on Chinese technology and pressure to secure affordable energy. Governments have introduced more than €40 billion in tax cuts and subsidies since March to cushion higher energy costs.
1. Electrification targets
The EU plans to nearly double electricity's share of final energy consumption by 2040 to around 46%, through faster deployment of heat pumps, electric vehicles, solar and wind power. The bloc estimates meeting the target could cut its fossil fuel import bill by €260 billion a year by 2040.
2. Reliance on China
China dominates supply chains for technologies needed for electrification, including solar panels, batteries, electric vehicles, magnets and rare-earth materials. The EU's trade deficit with China widened to €359.9 billion in 2025, up more than 20% from a year earlier, as Chinese electric vehicle exports added pressure on Europe's car industry. Brussels has raised tariffs on Chinese EVs to as much as 45%.
3. Energy security pressures
Disruption to Gulf oil and gas exports through the Strait of Hormuz sent European energy prices soaring, with diesel exceeding $200 a barrel and natural gas reaching its highest level since 2022. Some European countries have sought to boost domestic fossil fuel production or eased policies to curb consumption; since March, Germany, France, Spain and Britain have introduced more than €40 billion in tax cuts and subsidies to cushion higher energy costs.
