Industry Calls for Brexit Trade Deal Adjustment on EV Tariffs
The European Union and United Kingdom automotive sectors are pressing for a revision of the Brexit trade agreement to postpone, for a second time, tariffs on electric vehicle (EV) imports. Concerns have been raised that the industry will not meet the conditions required for tariff-free sales by 1 January 2027 due to stringent rules of origin stipulated in the EU-UK Trade and Cooperation Agreement, effective since 2021.
Rules of Origin and Battery Manufacturing Targets
The 2020 Brexit agreement mandated that 55% of a vehicle’s value must be produced in Europe by 1 January 2027 to qualify for tariff exemption. Additionally, 70% of the battery pack and 65% of the battery cell were required to be manufactured within Europe. The initial plan anticipated that within a few years, 30% of battery packs and cells would be produced in the EU or UK, with the rules of origin designed to incentivize domestic battery manufacturing investment.
However, by 2023, it became evident that these targets were not being met. Factors contributing to this shortfall included the COVID-19 pandemic and semiconductor shortages linked to Russia’s invasion of Ukraine. In response to industry pressure, the European Commission extended the tariff suspension until the end of 2024.
Industry Forecasts and Current Production Estimates
With seven months remaining before the deadline, the automotive sector has informed the Commission that the “made in Europe” battery production targets will again not be achieved. Jonathan O’Riordan, International Trade Director at the European Automobile Manufacturers’ Association (ACEA), stated:
“The industry had forecast that 60% of batteries across all segments, from cars to trucks, would be made in Europe by 2027 when the tariff schedule was first suspended in 2024. It is now estimated that by 1 January 2027 ‘just under 20%’ of batteries will be made in the EU.”
In the UK, battery production levels are higher but still fall short of the established targets, according to industry estimates.
Calls for Policy Changes and Industry Challenges
At a Brussels event on Friday, ACEA’s Director General, Sigrid de Vries, remarked on the slow progress in European battery drivetrain development and emphasized the need for a policy shift at the European Commission to accelerate the transition.
“The battery drive train development in Europe was far too slow,”
she said, adding that a more proactive approach is necessary.
Mike Hawes, Chief Executive of the UK’s Society of Motor Manufacturers and Traders (SMMT), commented:
“Battery supply chains are still not ready to meet these stringent requirements, which were based on assumptions that have not materialised despite major investment. The UK and EU must now find a pragmatic solution that avoids self-defeating tariffs on the very vehicles consumers are being urged to buy, while safeguarding investment in domestic battery capabilities.”
Production Barriers and Geopolitical Factors
Efforts to scale up battery production in both the EU and UK have been hindered not only by China’s dominance over critical raw materials such as lithium and its refined forms necessary for battery cells but also by high manufacturing costs. O’Riordan noted:
“The cost of battery manufacturing is very high, still 30% higher than in China.”
Despite several legislative measures introduced by the European Commission to support production, establishing local battery manufacturing remains costly and time-intensive. The process from opening a mine to producing battery-grade lithium can span several years. The head of Europe’s sole lithium factory stated:
“To open up a mine and build a fully fledged production chain – that’s maybe $750m.”
Hawes further emphasized the broader context:
“With wider geopolitical pressures and the EU’s ‘Made in Europe’ push adding further strain, both sides must lock in a bilateral commitment that protects our long-term automotive partnership and Europe’s wider competitiveness.”
European Commission Response and Ongoing Negotiations
A European Commission spokesperson commented:
“Discussions on these and can take place within the framework of ongoing EU-UK negotiations,”
adding that the Commission remains in constant contact with stakeholders in the EV sector to evaluate their readiness to comply with the rules of origin.
Market Concerns and Upcoming EU Leadership Meeting
The industry’s appeals coincide with apprehensions about overproduction in China, favorable exchange rates, and their potential to trigger a series of market disruptions and ultimately lead to supply chain imbalances. European leaders are scheduled to convene on 18 June, with China-related issues included on the agenda.
