Suggestions that Europe is split on the new ‘rules of origin’ have provided British ministers with new hope as they try to avoid post Brexit tariffs
British drivers will have to pay more for electric cars if ministers fail in a bid to stop tariffs being imposed under the Brexit trade deal.
The Government is relying on splits within the EU to secure an agreement which would avoid the new tariffs leading to a hike in showroom prices.
The UK has been lobbying Brussels to delay the introduction of new so-called “rules of origin” from January after Vauxhall’s parent company Stellantis said it would mean crippling tariffs on exports that would leave it unable to make electric vehicles (EV) in the UK.
The new rules would also see EVs imported from the EU, such as the Jaguar I-Pace and cars made by Audi, Volkswagen and Skoda, face 10 per cent tariffs that experts said would be passed on to consumers in price hikes.
That could mean new electric cars becoming around £5,000 more expensive than they are currently, depending on how much of the cost is absorbed by manufacturers. The average cost to buy an electric car in the UK is around £50,000.
Trade Secretary Kemi Badenoch once again raised the issue in talks with European Commissioner for Trade Valdis Dombrovskis on the margins of a G20 ministers’ meeting in India.
A Department for Business and Trade source told i: “Kemi is a politician who is keen to find solutions to problems.
“Her discussions with Dombrovskis were constructive and laser-focused on finding a solution that works.”
Chancellor Jeremy Hunt and Foreign Secretary James Cleverly have also raised the issue with their EU counterparts.
Brussels has so far insisted it will not reopen the UK-EU Trade and Cooperation Agreement (TCA) that provides the timetable for the introduction of the rules, while noting that technical adaptations may be possible and refusing to rule out a delay.
Meanwhile, officials in Whitehall believe that splits between the Commission and some member states, which want a delay, may help get a deal over the line.
One Government source stressed that “this issue is bad for the EU too”, noting calls from the ACEA (the European Automobile Manufacturers Association) to extend the current transitional rules for EV batteries until the end of 2026, warning of costs over 4bn euro that would risk “significantly reducing” Europe’s market share of vehicles in the UK.
Another said Covid had “wiped two years off plans to transition on both sides” of the Channel so there was “understandable concern” in both Europe and the UK.
How the new trade rules could affect the car industry
In May, both firms called for a new timeline to delay the introduction of the so-called “rules of origin” covering where parts must be sourced from, which they say will make their vehicles uncompetitive.
Their remarks added to pressure on Rishi Sunak and the Government to negotiate a delay with the EU to the “rules of origin” beyond January 2024.
Under current rules, 40 per cent of the value of an electric vehicle should originate in the UK or EU to qualify for trade without tariffs.
But this percentage will rise to 45 per cent from the beginning of next year, while for battery packs the threshold will be 60 per cent.
From 2027, this will be increased to 55 per cent for the value of an electric vehicle and 70 per cent for battery packs.
It is part of a bid by both the UK and EU to boost their homegrown electric vehicle industires and rely less on Chinese imports.
But any vehicles that do not meet the requirements face 10 per cent tariffs.
Car makers say they are not ready for the changes and are pushing for more time.
Tata Group – the owner of Jaguar Land Rover – has struck a deal with the Government to build an electric car battery factory in the UK but production is not expected to start there until 2026.
Car manufacturing remains one of the country’s highest value industries, employing 182,000 people in the UK and contributing £67bn a year in turnover to the economy.
But with the average vehicle requiring around 500 components sourced from all over the world, it was always one of the industries most vulnerable to the UK’s decision to leave the EU.
The extra costs imposed by the rules, which are meant to stimulate Europe’s EV battery-making industry, may also prove counterproductive by making Chinese cars more affordable in the UK than those made in Europe, some in Whitehall believe.
The Government is also seeking to reduce the impact of the tariffs by improving the capacity of battery manufacturing within the UK, which may allow car firms to locate more of their supply chains within Britain.
Professor David Bailey, a senior fellow at UK In A Changing Europe (UKICE), told i that 10 per cent tariffs would apply on imports of EVs from the EU “so any electric vehicle coming in from the EU to the UK will go up in price”.
“The seller may absorb some of the cost but there is no doubt there will be a price increase for European-made electric vehicles in the UK if there isn’t a deal, which when we are trying to get people into EVs, isn’t very good.”
The increased costs imposed on exporters could also “be passed on” to consumers via the price of cars made in the UK, such as the Nissan Leaf, made in Sunderland.
“There will be an impact as well on Nissan, a lot of their cars are exported to the EU,” he told i.
“There will be an impact both for consumers in terms of higher prices but also in terms of UK car output.”
Last year the EU exported 125,579 new battery electric cars to the UK – nearly half (47.0%) of all new battery EVs registered in 2022, the Society of Motor Manufacturers and Traders (SMMT) said.
A Government spokesman said: “The Business Secretary is acutely aware of this issue and at every opportunity she has raised it directly with her counterparts in the EU.
“This is an issue that affects, and has been raised by, businesses in both the UK and the EU, and we are working hard to find a solution.
“The Government is determined to ensure that the UK remains one of the best locations in the world for automotive manufacturing, building on successes such as the recent £4bn investment in a gigafactory by Tata Group, and Nissan’s £1bn EV hub in Sunderland.”
Source: Inews
