UK Car Industry to Press EU for Two-Year Delay to Brexit Tariffs on Electric Cars

The UK car industry is preparing to push for a two-year delay to Brexit tariffs on electric cars traded with the European Union, after an initial European proposal suggested a shorter delay.

Unless the two sides reach an agreement to delay them again, tariffs are due to take effect on 1 January on the majority of electric cars traded between the EU and the UK, under the implementation of 'rules of origin' on batteries.

The Brexit deal, rushed through on Christmas Eve in 2020, included a clause that British and European electric cars would have to use batteries made in either the UK or the EU with local materials, or face 10 percent tariffs. The rules would not have existed had the UK remained in the EU.

The rules were initially meant to come into force on 1 January 2024, encouraging the industry to invest in local lithium-ion battery manufacturing rather than relying on the dominant Chinese battery industry. But within three years several prominent projects on both sides of the Channel had collapsed, and in December 2023 the EU and UK agreed to extend the deadline.

Other battery projects have since taken their place, but many are yet to produce at the scale required to meet European demand. Instead, carmakers remain mainly reliant on imports from China, Japan and South Korea.

Carmakers in the UK and Europe are united in calling for the start of the rules of origin to be delayed again. However, no agreement has yet been reached, with the EU and UK also wrangling over whether Britain can be included in 'Made in Europe' subsidies and whether the UK should match EU tariffs on Chinese car imports. The topics are likely to form part of an EU-UK summit planned for next week.

The European Commission has shared proposals with the automotive industry to delay the start of the tariffs, although they have not yet been shared formally with the UK government. The proposals are understood to be highly technical, but essentially equate to delaying the start of the rules of origin by a year.

Some of the proposals are understood to include adjusting customs procedures and origin calculation methodologies, which could offer some temporary tariff flexibility.

However, some parts of the UK car industry believe more time is needed for the sector to adapt and for battery gigafactories to produce enough units. One UK executive said the industry would be clear that two years was the minimum, or the same discussion would return next year, adding that giga-industrialisation was happening in the EU and UK but was not yet producing at the required volume.

Another person said the negotiations would also focus on the technical details of the proposals, rather than simply aiming for a set time delay.

The European Automobile Manufacturers Association, an influential lobby group in Brussels, has argued that the tariffs are a serious concern for Europe's automotive industry. It estimated that 82 percent of EU electric car and van exports to the UK would face the 10 percent customs duty in 2027 under the rules, adding costs of 1.47 billion euros (1.23 billion pounds) next year alone.

Mike Hawes, chief executive of the UK lobby group SMMT, said the UK and EU must urgently agree pragmatic solutions to the challenges of Made in Europe and EV rules of origin, which if unresolved would cause severe damage to the deeply integrated industries. He said any agreement must remove the massive tariff liability faced on electrified vehicles traded from 1 January, be workable for manufacturers on both sides and protect ongoing battery investment, adding that meaningful consultation with the UK industry was essential.