Carmakers have warned that the prices of many electric vehicles made or sold in the UK and Europe could jump 10 per cent or more from 2024 after Brussels said it would not extend tariff exemptions agreed in the Brexit trade deal.
The UK-EU Trade and Cooperation Agreement (TCA) temporarily exempted EVs from rules stating that products must be substantially made in Britain or the bloc to qualify for the EU’s zero tariff, zero quota regime because such a large proportion of EV batteries are imported from Asia.
Both EU and UK car manufacturing groups are asking for the rules of origin exemption to be extended from December 31 2023 because there are not enough batteries and precursor chemicals currently being made in Europe. If London and Brussels do not agree a change, many EVs moving between the two would pay 10 per cent tariffs, increasing prices for consumers.
“The European battery industry is simply not taking off quickly enough to keep in line with more restrictive rules,” said a spokesperson for the European Automobile Manufacturers Association, which represents EU carmakers. “What is more, given the recent spike in prices of raw materials — which make up most of the non-European content of a battery — it is becoming increasingly challenging to meet the rules of origin for batteries.”
“If the batteries do not meet the rules, then it is virtually impossible that the electric car itself will, as batteries make up 30-45 per cent of the total price of an electric car,” the spokesperson added.
Under the TCA a maximum of 45 per cent of the value of products is allowed to originate from outside the EU in order to benefit from zero-tariff trade.
Until January 1 2024, at least 40 per cent of the content of electric vehicles, and 30 per cent of batteries, must originate from the EU or the UK. From 2024 until January 1 2027, this increases to 45 per cent of electric vehicles and 50 to 60 per cent of batteries. If this is exceeded carmakers will pay 10 per cent tariffs.
Mike Hawes, chief executive of UK trade body the Society of Motor Manufacturers and Traders, said he supported an extension to the exemption. “I do not think the battery manufacturing capability in either the UK or Europe will expand enough to meet demand,” he added.
However, an EU official said Brussels was “not open to changes to the rules of origin”. “They are part of a dedicated balance of the TCA. Stakeholders have been given the time to adapt, and they are advised to use the transition time provided,” the official added.
The UK government said it was confident the industry could adapt in time. “We are determined to ensure the UK remains one of the best locations in the world for automotive manufacturing, especially as we transition to electric vehicles. We agreed a zero tariff, zero quota deal with the EU, which includes modern rules of origin for the automotive sector,” said a spokesperson.
More than a dozen battery factories are expected to open across Europe this decade to cater for the growing number of electric vehicles made in the region. But carmakers say promises by the chemical and battery industry for a swift increase in production have not been met.
“We were sold a pup by the chemical industry,” said one person familiar with the talks.
However, neither the UK nor EU wanted to request an extension to the exemption. “The politics is such that if one side requests the other will demand something in return.”
EU member states could press Brussels into accepting rules of origin changes if London also agrees. But a qualified majority of member states would have to vote for the change at the council of the European Union.
Xiana Mendéz, Spain’s trade minister, recently told the FT that Madrid would favour the move. Spain is the second-largest carmaker in Europe by volume, producing 16 electrified models.
“We would be sympathetic. We have a value chain between the EU and UK. It is in the mutual interest for the right rules of origin to be in place. If we import batteries from Asia that has to be taken into account,” he said
Additional reporting by Peter Campbell in London