BRUSSELS, Jan 16 (Reuters) - Mercedes-Benz CEO

Ola Kaellenius urged the European Commission on Thursday to

recognise that subdued electric vehicle sales in the European

Union were due to weak demand not lack of supply and to scrap

potential fines for the auto sector.

The bloc's carmakers, who are struggling to compete against

Chinese rivals and bracing for U.S. tariffs after

President-elect Donald Trump takes office, face potential EU

fines of as much as 15 billion euros ($15.4 billion) if their

fleets do not meet CO2 emission limits in 2025.

Kaellenius, the new president of the European Automobile

Manufacturers' Association (ACEA), set out an industry wish list

ahead of a 'strategic dialogue' the EU executive plans with

carmakers, suppliers and trade unions.

The dialogue is designed to support the competitiveness of

automotive manufacturing in Europe, now facing job cuts.

Kaellenius said he expected the dialogue to start within

weeks, adding that the EU should also seek a "grand bargain"

with Trump to avoid a trade war.

The ACEA president said the CO2-emitting car targets were

based on expectations of a take-off of EV demand that had not

happened and urged political leaders to come up with ideas.

"We have made a few suggestions, but we didn't want to come

in with a prescriptive 'just do this', but say, let's recognise

there is an issue," he told reporters. "Any type of relief that

protects our investment capability is what we're seeking."

ACEA said EV sales fell by 5.9% last year, with a market

share of 13.6%, a percentage point down from 2023, rather than

an increase to 20% to meet carbon emission targets. It forecast

that market share would again fall short, risking high penalties

for non-compliance.

New EU car registrations rose by 0.8%, according to the

provisional ACEA figures, but the number of vehicles sold was

still 18.4% below the level in 2019.

Kaellenius also said the EU needed to boost competitiveness,

such as by deepening its single market and stimulating research,

and recognise the benefits of free trade.

($1 = 0.9734 euros)

(Reporting by Philip Blenkinsop; Editing by Emelia

Sithole-Matarise)