Post-Brexit tariffs on cross EU-UK electrical vehicle imports still going ahead

Moves to fight off a new "rules of origin" edict that some electric vehicle automakers claim could shut down their operations in the UK aren't going anywhere, judging by the words of a senior Euro Commish official.

The fresh rule starts from January 1, 2024, and means that British and European carmakers can't get that sweet zero-tariff rate while exporting to each other unless at least 45 percent of an electric vehicle's parts (by value) and 60 percent of its battery originate from either the UK or EU. If they don't hit the right ratio, a 10 percent tariff kicks in when exporting the vehicles from the UK to the EU, or vice-versa. The current threshold for the EV's parts, under the EU-UK Trade and Cooperation Agreement (TCA), is 40 percent. It is due to rise to 55 percent in 2027.

The high price of batteries and the fact that plenty of the components in a car are currently sourced from China and other parts of Asia has many in the automotive industry warning that the thresholds will strangle their businesses.

Speaking at the EU-UK Parliamentary Partnership Assembly this week, Richard Szostak – known for his work as the so-called EU-Brexit divorce mediator – pushed back against multiple British and Euro MPs asking for the rules to be delayed, saying that American subsidies dished out to its domestic makers under the Inflation Reduction Act were choking off the sector.

He said:

He said the EU had to look at the other side "when judging its interest."

Among others, Chrysler/Peugeot maker Stellantis told a UK government inquiry into the supply of batteries for EV manufacture [PDF] earlier this year: "If the cost of EV manufacturing in the UK becomes uncompetitive and unsustainable, operations will close."

Stellantis added: "If we source batteries from mainland Europe and China, as currently planned, our UK Stellantis plants will also be at a competitive disadvantage due to the higher logistics costs that we will face to transport the batteries from mainland Europe to the UK."

Mike Hawes, chief executive of the UK's Society of Motor Manufacturers and Traders (SMMT) said in May: "The UK-EU TCA provided the basis for tariff-free trade and unlocked some pent-up investment. However, the rules of origin for batteries pose a significant challenge to manufacturers on both sides of the Channel, with the prospect of tariffs and price increases which discourage consumers from buying the very vehicles needed to achieve climate change goals."

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Others have asked that the British government helps fend off the reaction to the American Chips Act with its own Chips act plan.

Andrew Buss, IDC senior research director in Europe, previously told The Reg that: "The UK status outside of the EU single market means that potential tariffs and rules of origin requirements would make exporting the manufactured components more challenging and expensive. It is also not clear what tax incentives would be provided to make the long term investment worthwhile."

In June, ACEA, the Euro car manufacturer group, said in a letter to the Commission that it also wants current TCA rules extended until the end of 2026, claiming "the payment of customs duties over that period would amount to €4.3 billion.

It added: "This risks significantly reducing the EU auto industry's market share of electric vehicles in the UK, potentially impacting the production of some 480,000 electric vehicles.

"While the restrictive rule of origin is ostensibly a tool to drive investment in European battery supply chains, its application will be counterproductive in the short term by creating a situation in which no player in the supply chain is able to comply."

Stellantis, meanwhile, said in its Parliamentary evidence that it believes "there will not be sufficient battery production supplies in the UK or in Europe by 2025 and 2030, despite the fact this is key to meet the Trade and Cooperation Agreement under the current Rules of Origin."

After Britishvolt's collapse in January, the UK has almost no battery production to speak of, save for Nissan's plant in Sunderland, although EV battery specialist Envision has begun work on a new Gigafactory in the area. That plant is only slated to come online in 2025.

Analysts at Benchmark Minerals told us last year that they forecast European EV related cell demand to reach 1250 GWh by 2035, and a pipeline cell production capacity in Europe of 1155 GWh to 2035, across 30 plants.

"Not all of this pipeline capacity will make it to production, nor will it be dedicated 100 percent to supplying transportation end markets, finally considering average utilization rates this leaves a clear gap in regional self sufficiency in cell supply."

However, German automotive industry body the VDA appears to have hope that European governments will push for an extension on rules of origin in the TCA beyond January 1, 2024, telling us: "If there is the political will to adjust the rules of origin, then there will be a way."

"It is the turn of the federal government and it should make it clear to the EU Commission that there is a need for adjustment.

"We definitely see a willingness to talk within the federal government."

A spokesperson told us: "We are now confronted with the situation where the development of a fully integrated battery supply chain in Europe is not progressing fast enough to comply with the more restrictive rules of origin under the TCA with the UK." ®