The United Kingdom’s carmaking industry is facing a significant obstacle in the form of a provision in the nation’s post-Brexit EU trade treaty. If not postponed, this provision will impose a hefty 10-percent tariff on electric vehicles, which could have severe consequences for the industry. Upon leaving the European Union in early 2021, the UK entered into a free trade deal that eliminated tariffs for the country’s predominantly foreign-owned car manufacturers. However, there is a catch: the “rules of origin” condition stipulates that from 2024, at least 45 percent of the value of vehicle parts must originate from either the UK or the European Union to qualify for exemption from customs duties. Unfortunately, electric vehicle batteries, a significant component of their sale price, frequently come from China, despite the UK’s efforts to establish its own gigafactories for battery production.
Hope for an Agreement
The UK car industry remains hopeful that an agreement can be reached to postpone the implementation of the provision before the January 1 deadline. Mike Hawes, the chief executive of industry body the Society of Motor Manufacturers and Traders (SMMT), expressed optimism that a compromise could be reached. Adding additional tariffs to electric vehicles, while simultaneously encouraging people to purchase them, would be counterproductive. Therefore, common sense should prevail, and the tariff imposition should be delayed. However, Hawes acknowledges that the negotiation process could drag on, similar to the protracted Brexit discussions, possibly extending until Christmas Eve or even beyond.
The UK has set ambitious goals in the transition to electric vehicles. It plans to ban the sale of new petrol and diesel vehicles from 2030, aiming to achieve net-zero carbon emissions by 2050. Consequently, the automotive sector must shift its focus towards manufacturing fully electric cars. This shift presents both opportunities and challenges for the UK. On one hand, the country has a thriving market for EU-based car producers. Germany, in particular, has urged the European Commission to postpone tariffs on electric car sales between the UK and the EU, recognizing the importance of the British market. On the other hand, Brussels recently launched an investigation into Chinese state subsidies for electric cars, raising the possibility of higher customs duties. This move by the European Union is an attempt to safeguard its own industry against unfair competition.
The SMMT’s plea to delay the tariff imposition follows recent developments within the UK car industry. German carmaker BMW unveiled plans to increase production of electric Mini cars in the UK, with support from the UK government. This announcement reflects the growing confidence in the future of electric vehicles and their potential for success in the market. Furthermore, India’s Tata Group announced in July that it would invest £4 billion in building a battery manufacturing facility in the UK. This investment highlights the accelerating global shift away from fossil fuel vehicles and the importance of the UK’s role in this transition.
The UK carmaking industry faces a significant challenge with the impending tariff threat on electric vehicles. The industry remains hopeful that a solution can be found to postpone the implementation and avoid jeopardizing the growth and adoption of electric vehicles in the country. As the UK strives to achieve its net-zero carbon emissions target, the transition to fully electric cars is crucial. It is imperative for the industry and relevant stakeholders to work together to ensure a sustainable and prosperous future for the UK electric vehicle market.
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