If we don’t lower prices, electric car sales could stagnate

Could I get you interested in saving our planet? You may want to use less water, consume less plastic and fly less. If none of these options appeal to you, there’s a simple way to reduce your impact on the planet: ditch that dirty car that you drive to Sainsbury’s each week, and replace it with an electric vehicle. They’re not cheap and charging points can be difficult to find and unreliable. The government also stopped subsidizing them last year. The cars are still good. Not sure? What if I increase the price by 10% from next year?

Electric vehicles are likely to increase in price. It may sound absurd, but it’s true. In January 2024, European electric vehicles sold in the UK, and British electric vehicles going the other direction, could face 10 percent tariffs, if they do not meet certain criteria. They must be at least 45 percent made up of parts that originate in either the UK, or EU. The threshold for car batteries is 60 percent. The “rules” of origin are standard clauses that govern trade agreements between countries. They determine what products are allowed to cross borders without tariffs. Why not call the January 1 deadline a “cliff edge”? The Trade and Co-operation Agreement, signed by the government to seal Brexit in 2020, is the result of this deadline.

These rules of origin could have the effect of increasing costs for drivers, just as we are trying to encourage them to buy more EVs. The price of electric cars will increase, because carmakers won’t absorb the tariffs out of goodness of heart.

Car firms from both sides of Channel are furious and want the deadline pushed back until 2027 when stricter regulations will be implemented. The UK government also wants a delay but this power belongs to the European Commission, which has said it will not budge.

According to the European Automobile Manufacturers’ Association, (ACEA), the UK is Europe’s largest export market, with 1.3 million cars worth €30,6 billion (£26,2 billion) a yearly. It estimates that the imposition of tariffs will cost the industry €4.3bn over three years. In the opposite direction, things are not much better: 62% of British cars are exported to Europe.

How did we end up in this mess with the rules-of-origin farrago? The 2024 deadline was not set randomly. The EC wants Europe to develop its own battery manufacturing capability, so that it does not rely on primarily Chinese-made packs. The EC saw a deadline as a way of motivating people to make the necessary investments.

It takes time and a lot of money to build the “gigafactories”, or battery factories, required to electrify an industry. Not to mention the supply chains to feed them. The UK’s attempts to build gigafactories have failed.

Since the rules were rubber-stamped we have had a pandemic, an economic crisis and a shortage of microchips and wire harnesses in Ukraine and the Far East. Industry sources complain that even without Covid and a European war, the EC’s timeline was always wildly unrealistic and that officials believed the optimistic claims of battery manufacturers who knew better. Will the commission stick to its roadblock for the new year, or will it take a backwards step?

I’m inclined to believe the former, particularly once the auto titans of Wolfsburg – VW and its family of brands – get Berlin on the telephone to Brussels. But we could all do without another down-to-the-wire, talks-lasting-all-night Brexit drama. All parties should come together to make a decision that is simple and give the automakers what they ask for.

As a number of Chinese brands race to the outside, there is a lack of certainty. These brands can take the tariffs on imported parts and still undercut western competitors. According to the ACEA, Chinese-made cars now account for 32 percent of the UK EV market. This is up from just 2 percent in 2019. (These numbers include Chinese built Teslas.) The ACEA reports that Chinese-made vehicles now account for 32 per cent of the UK’s EV market, up from 2 per cent in 2019. (These numbers include Chinese-built Teslas).

Pension funds don’t buy British
The City has been gnashing its teeth about the plans of the chancellor, who is expected to make his Mansion House address tomorrow. He wants to encourage pension funds, in order to increase investment in UK plc, to invest 5% of their cash into British equities. Pension funds are concerned about being forced into riskier investments. This is not unreasonable. Some people are hesitant to move too quickly and say that we should find better solutions before we begin to cajole funds into throwing their money around. Why not combine smaller pension pots into superfunds or increase auto-enrolment payments to make them bigger?

All valid points, but there is a strong case for resoluteness on the part of firms. Ten large pension schemes spoke out against the Financial Conduct Authority’s proposed reforms to stock market listings last month. These funds were clear about the dangers of weakening the rules and they should be taken seriously. A closer look at these ten funds reveals some of the issues that Jeremy Hunt wants to solve: Very few have UK equities as their top holdings. Although they may say that they support the UK, do their actions match their words?