New Brexit Trade Rules Could Impose £3.75 Billion in Costs on European Carmakers Over Three Years.
The newly introduced Brexit trade rules, which mandate that electric vehicles produced in the EU must predominantly contain locally sourced components, may result in a significant financial burden of £3.75 billion for European manufacturers over the next three years, according to a statement from an industry association.
These regulations are aimed at ensuring that EU-manufactured electric cars use components primarily sourced within the EU or the UK. However, carmakers on both sides of the English Channel have expressed their lack of preparedness for these rules.
The European Automobile Manufacturers Association (ACEA) has also cautioned that these measures could potentially lead to a reduction in the production output of EU-based factories by as many as 480,000 vehicles, which may, in turn, affect consumers with higher prices.
The core issue revolves around the “rules of origin,” set to take effect in January, which pertain to car shipments between the UK and the EU under the terms of the Brexit deal, known as the UK-EU Trade and Cooperation Agreement. These rules effectively require that electric vehicles have batteries manufactured either in the UK or the EU. Any cars failing to meet these criteria will incur 10% tariffs when transported across the Channel in either direction.
While these rules were intended to safeguard the European automotive industry from low-cost imports, the slower-than-expected expansion of battery production in Europe has made it challenging for carmakers to comply with the new standards.
This issue presents a significant challenge for European manufacturers, as the UK serves as their largest export market, with approximately 1.2 million vehicles shipped to UK ports last year. Conversely, more cars built in the UK are exported to the EU than to any other region. The imposition of steep tariffs could escalate the production costs of electric cars and potentially drive up consumer prices.
The ACEA is advocating for a three-year postponement of the new rules and is appealing to the European Commission to take action to address the situation. Renault Chief Executive Luca de Meo, who is also the ACEA’s president, expressed concerns that this move might cede a portion of the market to global manufacturers.
To delay the rules, an agreement between the UK and the EU would be necessary. The UK’s Business Secretary, Kemi Badenoch, expressed optimism regarding the possibility of such an agreement, while the EU’s Internal Market Commissioner, Thierry Breton, appeared less open to renegotiating the Brexit deal.
Breton argued that reopening negotiations to satisfy the automotive industry would be inappropriate, emphasizing that negotiated agreements should not be altered. The European Commission noted that Brexit has altered the trade relationship between the UK and the EU, and the rules of origin are aimed at bolstering a robust battery value chain within the EU.
Sigrid de Vries, the Secretary General of ACEA, acknowledged the sensitivity of the matter and indicated that the industry did not seek fundamental changes to the existing arrangements.
While optimism remains for a possible agreement between the UK and the EU, it may potentially come together at the last minute, akin to the Brexit negotiations themselves. Trade officials from both sides are scheduled to meet in London this week, but it is uncertain whether the new rules will be on the agenda.
