The European Commission insists it will continue to implement plans for tariffs to be imposed on electric vehicles that are shipped between the UK an EU as of next year, after warning the bloc is losing in the global competition for battery investments.
The British government is asking for a delay of the post-Brexit rule that, according to it, will impose excessive costs to the automotive industry between 2024 and 2027.
“rules on origin” require that EVs sold across the Channel have 60% of their battery, and 45% of their total parts sourced from EU or UK. If not, they will be subject to a 10% tariff.
Richard Szostak told British and EU Parliamentarians this week that Battery Investmentin Europe had “fallen of a cliff”, and that the tariffs will encourage domestic production.
He noted that the US provided large subsidies as part of its Inflation Reduction Act. As a result, the EU’s share in global investments in battery production fell from 41 percent in 2021 to only 2 percent in 2022.
“In addition to [the pull factor] from the US’s IRA, . . We would add a push-factor to encourage batteries to be purchased in China or the US (by not introducing cross channel tariffs). Szostak stated that this is the other side to the debate. Szostak said that the EU must consider both sides when assessing its interests.
Due to the slow opening of battery factories in Europe and the UK as well as the dominance of China in certain parts of the production process, most European cars will not be able to meet the new rules. The EU car lobby group ACEA calculated its members would be faced with a €4.3bn bill between 2024-2026.
This issue is particularly acute for carmakers from continental Europe that sell large volumes of vehicles in the UK. These include VW, Mercedes, and Ford, due to the new EV quota which will be introduced by the British Government next year.
By 2024, 22 percent of all UK vehicle sales must be zero-emissions vehicles. To meet that target, EVs manufactured on the continent will need to be imported.
The UK can import most EVs from Japan and South Korea without any tariffs under their post-Brexit agreements. If EVs in the EU are subject to a 10 percent tax, this would result in EU carmakers losing their market share.
Chinese-made cars already pay tariffs, but they can compete with EU made EVs due to their lower starting price.
The Society of Motor Manufacturers and Traders (SMMT), which represents the UK automobile industry, warned that tariffs on EU imports will slow down the sale of EVs as higher prices would be incurred by consumers.
The EU carmakers hope that their national governments will pressurize the Commission to change its approach, but they admit this hasn’t happened yet.
One industry official said, “Nobody wants to get the political message when you see customs duties for electric vehicles go up suddenly by 10%.” There is definitely a desire to discuss this. It’s too early to tell if the penny has dropped, and if this will be changed. “We have a lot of work to do.”
Lord Dominic Johnson, the UK’s trade minister, told a meeting of parliamentarians in response to Szostak that both sides should “not beggar one another” by creating separate supply chains. He wants “proper access across borders to each other’s supply chains that makes them more efficient”.
“It is a very clear realization amongst us all. . . “There is no benefit to frictions that are unnecessary and reduce trade, welfare, and wealth,” he continued.
A spokesperson for the UK government said: “The Business and Trade Secretary has raised concerns with the EU about the 2024 changes to the rules of origin for electric vehicles, and their batteries. He is determined to find an EU-UK solution that will ensure the UK remains among the best locations for automotive manufacturing in the world.”