BRUSSELS (Reuters) -All European carmakers except Mercedes-Benz are on track to meet the European Union's 2025-2027 carbon emission targets thanks to an expected surge in sales of new electric vehicles, according to a report published on Monday.

Research and campaign group Transport & Environment forecast a marked improvement from first-half sales in 2025, when only Geely-owned Volvo Cars and BMW were on course while Stellantis ( STLA ), Renault, Volkswagen and Mercedes were lagging.

The report said increased launches of more affordable models thanks to declining battery prices and sharp growth of charging infrastructure were fuelling demand. It forecast battery electric vehicle sales would surpass a 30% share of the EU car market in 2027 from 18% this year.

T&E said this was a sign that targets were working and said that any weakening of the next set of targets for 2030 and 2035 would dismantle investments in EVs and allow China to extend its lead. 

"Europe now faces a decisive choice: to either lead the global BEV race and confidently enter the electric age or risk falling behind in the fossil fuel era," it said.

Auto groups have said that future CO2 emission targets, including a 100% reduction by 2035, are no longer feasible. Executives are due to meet European Commission President Ursula von der Leyen on September 12 to discuss the EU sector's future.

The European Commission yielded in March to pressure from European automakers to give them three years, rather than one, to meet CO2 emission targets for new cars and vans.

T&E said expected Mercedes to keep trailing other EU automakers on the targets as it was focussing on more profitable internal combustion engine models.  

Failure to meet the targets results in fines, which carmakers had said would run into billions of euros if 2025 was the target year. Compliance is now based on average emissions over the period 2025 to 2027.

Mercedes is expected to avoid fines by pooling its emissions with those of Volvo Cars and Polestar, for which Mercedes would pay its rivals. Sweden's Volvo is majority-owned by China's Geely Holding, whose chairman controls a company with a 9.69% stake in Mercedes.

(Reporting by Philip Blenkinsop; Editing by Emelia Sithole-Matarise)