New trade rules governing electric vehicles (EVs) as part of the Brexit deal could cost European manufacturers £3.75bn ($5bn) over the next three years, according to the European Automobile Manufacturers Association (ACEA). The rules, which come into effect in January 2022, require EU-produced EVs to be made largely from locally sourced parts. If the criteria are not met, the cars will face 10% tariffs when transported across the Channel. The ACEA has warned that the new regulations could reduce output from EU factories by 480,000 vehicles, and customers would bear the cost.
The main challenge arises from the “rules of origin” specified in the Brexit deal. They dictate that EVs must have batteries produced in either the UK or the EU. However, European carmakers are struggling to meet the criteria as battery production in the region hasn’t expanded as quickly as anticipated. The UK is the largest export market for European manufacturers, and steep tariffs could make EVs more expensive to produce, potentially leading to higher prices.
The ACEA is calling for a three-year delay in implementing the new rules and is urging the European Commission to take action. Luca de Meo, CEO of Renault and ACEA’s president, said that driving up consumer prices for European EVs at a time when the region needs to fight for market share against global competition is not the right strategy. He warned that it could result in European manufacturers losing a significant portion of the market to their international counterparts.
To push back the rules, an agreement between the UK and the EU would be required. UK Business Secretary Kemi Badenoch expressed optimism about reaching a deal last week, but EU Internal Market Commissioner Thierry Breton was less forthcoming, stating that reopening the Brexit deal to satisfy the motor industry would be wrong. The European Commission emphasized that the trade relationship between the UK and the EU has changed due to Brexit and that the rules of origin aim to develop a strong and resilient battery value chain in the EU.
ACEA Secretary General Sigrid de Vries admitted that it is not surprising the industry’s appeals are facing resistance, as Brexit-related matters are politically sensitive. She stressed that car manufacturers are not seeking fundamental changes but rather a delay in implementing the new rules. Mike Hawes, CEO of the UK’s Society of Motor Manufacturers and Traders, remains optimistic that an agreement can be reached but suggested that it may be a last-minute decision, similar to the Brexit negotiations themselves. Trade officials from the EU and the UK are scheduled to meet this week, though it is unclear whether the new EV rules will be on the agenda.