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Saturday, December 2, 2023

Brexit EV Trade Rules: Cost to European Manufacturers

In recent developments surrounding Brexit trade regulations, European electric vehicle manufacturers face substantial challenges and potential financial losses. According to the European Automobile Manufacturers Association (ACEA), the newly enforced trade rules designed to ensure EU-produced electric cars primarily consist of locally sourced parts could result in a staggering £3.75 billion in losses over the next three years. The implications of these regulations are far-reaching, affecting manufacturers on both sides of the Channel and, ultimately, consumers who may bear the brunt of increased costs.

Rules of Origin: A Critical Challenge

The core issue lies within the concept of “rules of origin,” which have come into effect as of January. These rules apply to car shipments between the UK and the EU under the terms of the Brexit deal, officially known as the UK-EU Trade and Cooperation Agreement. Essentially, they mandate that electric vehicles must incorporate batteries produced either in the UK or within the EU. Failure to meet these criteria results in a substantial 10% tariff imposed on car shipments moving across the Channel in either direction.

Struggles in Battery Production

While the intent behind these rules is to safeguard the European automotive industry from the threat of cheap imports, the reality is that battery production within Europe has not scaled up as swiftly as anticipated. Consequently, car manufacturers are grappling to align their operations with these new requirements. This presents a grave concern for European manufacturers, as the United Kingdom stands as their largest export market, with approximately 1.2 million vehicles arriving at UK ports in the previous year. Similarly, the EU receives more cars manufactured in the UK than any other region. The imposition of steep tariffs could significantly inflate the production costs of electric vehicles, potentially leading to higher consumer prices.

The ACEA’s Plea for a Delay

In response to these challenges, the ACEA is fervently advocating for the postponement of these rules for a duration of three years. The association is actively seeking intervention from the European Commission to address this matter. Renault’s Chief Executive, Luca de Meo, who concurrently serves as ACEA’s president, expressed his concern, stating, “Driving up consumer prices of European electric vehicles, at the very time when we need to fight for market share in the face of fierce international competition, is not the right move.” He further emphasized the risk of ceding market share to global manufacturers if these rules are not deferred.

The Path Forward: Negotiation Required

To delay the enforcement of these rules, a consensus between the UK and the EU must be reached. While the UK’s Business Secretary, Kemi Badenoch, expressed optimism regarding the possibility of such an agreement, the EU’s internal market commissioner, Thierry Breton, was notably less forthcoming. Breton firmly asserted that reopening the Brexit deal to accommodate the motor industry’s demands would be inappropriate.

The European Commission has defended the rules of origin, emphasizing that they aim to foster a “strong and resilient battery value chain in the EU.” This stance suggests that the Commission is reluctant to entertain significant changes to the existing arrangements, given the politically sensitive nature of Brexit-related issues.

Industry Outlook

As these developments unfold, Sigrid de Vries, the secretary general of ACEA, acknowledges the resistance encountered by the industry’s appeals. She notes, “The European Commission doesn’t want to change anything, it seems when it comes to Brexit-related topics. It’s politically very sensitive.” However, she emphasizes that the industry is not seeking fundamental alterations to the agreements in place.

Meanwhile, Mike Hawes, the chief executive of the UK’s Society of Motor Manufacturers and Traders, remains cautiously optimistic. He believes that an agreement can still be reached, albeit possibly at the eleventh hour, reminiscent of the Brexit negotiations themselves.

Trade officials from both the EU and the UK are slated to convene this week in London. The extent to which the new trade rules will feature on the agenda remains uncertain, but their impact on the future of electric vehicle manufacturing in Europe is undeniably significant.

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