Brexit trade rules on electric vehicles could cost European manufacturers £3.75bn over the next three years, according to the European Automobile Manufacturers Association (ACEA). The rules require EU-produced electric cars to be made predominantly from locally sourced parts. However, manufacturers on both sides of the Channel have raised concerns about their readiness to comply. The ACEA also warned that the measures could lead to a reduction in output from EU factories by 480,000 vehicles and ultimately result in higher prices for customers.
The challenge lies in the “rules of origin,” which come into effect in January as part of the UK-EU Trade and Cooperation Agreement. These rules stipulate that electric vehicles must have batteries produced in either the UK or the EU. Failure to meet this requirement will result in a 10% tariff when transporting cars across the Channel in either direction. The aim of these rules is to protect the European industry from cheap imports.
However, the slow ramp-up of battery production in Europe has left carmakers struggling to meet the new criteria. This poses a significant problem for European manufacturers, as the UK is their largest export market, with 1.2 million vehicles arriving at UK ports last year. Similarly, more cars built in the UK are transported to the EU than any other region. If steep tariffs are imposed, it could increase the cost of producing electric cars and potentially push up prices.
The ACEA is requesting a three-year delay in implementing the rules and is appealing to the European Commission to take action. Renault chief executive Luca de Meo, who also serves as the president of ACEA, argued that driving up consumer prices of European electric vehicles during fierce international competition is not a wise move and could hand a substantial portion of the market to global manufacturers.
For the rules to be pushed back, an agreement between the UK and the EU needs to be reached. The UK’s Business Secretary, Kemi Badenoch, expressed optimism about the possibility of such a deal, while the EU’s internal market commissioner, Thierry Breton, seemed less forthcoming in an interview with the Guardian, stating that it would be wrong to reopen the Brexit deal for the motor industry.
Responding to the industry’s appeals, the European Commission emphasized that Brexit has altered the trade relationship between the UK and the EU. It stated that the EU-UK Trade and Cooperation Agreement is the result of negotiated commitments from both sides and highlighted that the rules of origin are intended to develop a strong and resilient battery value chain in the EU.
Sigrid de Vries, the secretary general of ACEA, acknowledged that resistance is not surprising, given the politically sensitive nature of Brexit-related topics. She emphasized that the industry is not seeking fundamental changes to the arrangements but rather a reconsideration of the timing.
Despite the challenges, there is still optimism that an agreement can be reached. The chief executive of the UK’s Society of Motor Manufacturers and Traders, Mike Hawes, believes that a deal is likely but cautioned that it might come down to the wire, similar to the Brexit negotiations.
Trade officials from the EU and the UK are scheduled to meet in London this week, and it remains unclear whether the new rules will be on the agenda.