The UK carmaking industry is facing uncertainty as it hopes for a postponement of a provision in the nation’s post-Brexit EU trade treaty. The provision, which is set to come into effect on January 1, 2024, will impose a 10-percent tariff on electric vehicles. This tariff will apply unless at least 45 percent of the value of vehicle parts originate from either Britain or the European Union, a requirement under the deal’s “rules of origin” condition.
Despite the looming change, the UK carmaking industry remains optimistic that an agreement will be reached before the deadline. Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders (SMMT), expressed hope for a resolution that avoids additional tariffs on electric vehicles. Given the UK’s commitment to ban sales of new petrol and diesel vehicles from 2030 as part of its net-zero carbon emissions target by 2050, the industry sees it as counterproductive to impose such tariffs on vehicles the government is encouraging people to buy.
The imposition of tariffs on electric vehicles poses not only challenges for the UK carmaking industry but also for EU-based car producers. Germany, for example, has urged the European Commission to postpone tariffs on electric car sales between the UK and the EU. These tariffs could have a significant impact on cross-border trade and disrupt the supply chain for electric vehicle components.
One of the key factors affecting the industry’s ability to meet the “rules of origin” requirement is the dependence on batteries that originate from China. Despite UK efforts to establish its own gigafactories for battery manufacturing, a significant portion of batteries used in electric vehicles still come from China. This reliance on Chinese batteries could jeopardize the industry’s ability to meet the 45 percent threshold and be exempt from tariffs.
The challenges faced by the UK carmaking industry extend beyond the EU. Brussels recently announced an investigation into Chinese state subsidies for electric cars, which could result in higher customs duties. As the EU seeks to protect its industry from unfair competition, higher tariffs on imported electric vehicles from China could further strain the UK carmaking industry’s supply chain and competitiveness.
In the midst of these uncertainties, there have been positive developments. German car giant BMW has unveiled plans to increase production of electric Mini cars in Britain, with the support of the UK government. This demonstrates confidence in the UK’s potential as a hub for electric vehicle manufacturing. Additionally, India’s Tata Group has announced plans to invest £4 billion in the UK to manufacture batteries, further bolstering the country’s efforts to accelerate the transition away from fossil fuel vehicles.
The UK carmaking industry is navigating through a period of uncertainty as it hopes for a postponement of tariffs on electric vehicles. The industry remains optimistic about reaching an agreement that avoids additional tariffs and supports the government’s goals of transitioning to fully electric cars. However, challenges such as the reliance on Chinese batteries and potential international competition underscore the need for strategic planning and investment to ensure the industry’s long-term viability. With the right support and collaboration between the government and carmakers, the UK has the potential to become a leader in electric vehicle production and contribute to a sustainable future.