The European Commission has proposed extending the compliance period for the EU's 2025 CO2 emissions targets from one year to three years, giving automakers until 2027 to meet the requirements.
The proposal, published on Tuesday, would allow car manufacturers to base their compliance on average emissions over the 2025-2027 period, rather than just 2025.
European carmakers had requested relief from the targets, which require selling more electric vehicles in a market where they are struggling against Chinese and US competitors.
European car manufacturers had warned that the original targets could result in the industry facing up to 15 billion euros (£12.8 billion) in fines for missing the goals.
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The new rules have been met with mixed responses from manufacturers and governments
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Commission President Ursula von der Leyen said in a statement: "With today's initiative, we grant more flexibility to this key sector, and at the same time we stay the course of our climate goal."
Von der Leyen had earlier this month pledged to give automakers "breathing space" on the rules. The proposal requires approval from the European Parliament and EU countries.
The tighter EU carbon dioxide emissions limits that kicked in this year require at least one-fifth of all sales by most car companies to be electric vehicles.
The Czech Republic, a hub for car manufacturing, has previously said it would push for a five-year compliance period.
EU countries and the European Parliament can propose further changes to the Commission's proposal during the approval process.
This adjustment comes as European manufacturers face significant challenges in the electric vehicle market.
The industry's reaction to the proposal has been mixed. Volkswagen and Renault have expressed support for extending the compliance period.
However, Volvo Cars, which is majority owned by Chinese EV maker Geely, had warned against disadvantaging companies that have already invested to comply with the 2025 targets.
Electric transport industry group E-Mobility Europe has also raised concerns, warning that changing the 2025 CO2 limits will put Europe further behind China in EVs.
Chris Heron, Secretary General of the organisation, said: "We regret today's weakening of the EU's 2025 CO2 limit, which will dampen short-term electric car sales and reduce planning security in the wider ecosystem - from charging to batteries.
"But we call on the Parliament and Council to approve this one-off amendment swiftly and without broader intervention, to reestablish market certainty. Global electric car sales are booming, and Europe needs to keep pace."
European car manufacturers have already been hit by falling demand and factory closures, in addition to US tariffs launching this evening.
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PAThe tariffs will be introduced on April 2, which US President Donald Trump has dubbed "Liberation Day".
The US will impose a 25 per cent tariff on all foreign cars imported into the nation, which has forced governments around the world to scramble and attempt to sign last-minute trade deals.