Europe won’t be fully electric before 2040, circular deals in AI and Eurozone growth takes a step forward

Europe’s plan to ban sales of internal combustion engine vehicles by 2035 is caught in the clash between national industrial interests and regional green ambitions. But short-term concerns risk overlooking the big picture: The EU is likely to miss its target to turn fully electric by 2035, which in turn threatens the goal to become carbon-neutral by 2050. Though EV sales are the rare bright spot in Europe’s muted car market this year (+24% sales ytd vs +1% overall; market share +3pps to 16%), the pace of adoption is still too slow as consumers prefer hybrid models and EV infrastructure falls short. By end-2025, the EU is expected to have around 1.1mn charging stations, less than one-third of the European Commission’s 2030 target of 3.5mn, with the installation pace slowing to the weakest rate since 2019. Against this backdrop, postponing the ICE ban could send the wrong signal, worsening the already fragile market confidence in Europe’s automotive industry and widening the technology gap with global rivals that benefit from clearer strategies and stronger financial backing.

A surge of interlocking deals (USD65bn in equity and over USD800bn in purchase agreements) is reshaping the AI sector. Chip companies are taking stakes in AI firms in exchange for massive hardware orders, while cloud giants lock in exclusive computing contracts by injecting capital. This circular structure has helped inflate valuations and deepen sectoral entanglement, even as AI firms spend far more than they earn. Investors expect annual revenue and profit margin growth of +20% and although demand and revenue growth are real, we estimate that equity valuations of US chipmakers and cloud providers could drop by 25-35% if these profit targets are not met. Unlike the Japanese keiretsu model, which was designed to secure supply chains, the AI loop is built to secure revenues – often without underlying end-user sales. These partnerships rather resemble large-scale vendor financing – locking in revenues upfront, but relying on future demand to justify soaring capital flows. While the top US tech players expect over USD200bn in post-capex free cash flow this year, the sector’s exposure to a single factor only raises the bar for AI to deliver. Going forward, investors should focus on monetization and deployment rates before mistaking closed-loop financing for organic growth.