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The European Commission has insisted it will stick by plans to impose tariffs on electric vehicles shipped between the UK and EU from next year after warning that the bloc was losing out in the global battle for battery investments.
The British government, backed by carmakers from across Europe, is seeking a deferral of a post-Brexit trade rule it argues will heap excessive costs on to the industry from 2024 to 2027.
The requirement under “rules of origin” requires EVs traded across the Channel to have 60 per cent of their battery and 45 per cent of their parts by value overall sourced from the EU or UK or face 10 per cent tariffs.
But this week a senior commission official, Richard Szostak, told British and EU parliamentarians that battery investment in the bloc had “fallen off a cliff” and the tariffs would incentivise domestic production.
The EU’s share of global investment in battery production dropped from 41 per cent in 2021 to just 2 per cent in 2022, after the US offered large subsidies under its Inflation Reduction Act, he noted.
“In addition to the pull factor [from the US’s IRA] . . . we would be adding a push factor encouraging batteries to be bought in China or the US [by not introducing cross-Channel tariffs]. That is the other side of the discussion,” Szostak said. “The EU when judging its interest has to look at both sides of this question,” he added.
The slow pace of openings of battery factories across the continent and the UK, along with Chinese dominance in key parts of the process, mean most cars made in Europe will not meet the new rules of origin. EU car lobby group ACEA calculated that its members would face a €4.3bn bill from the levy between 2024 and 2026.
The issue is most acute for continental European carmakers that sell large numbers of vehicles in the UK, including VW, Mercedes and Ford because of a new EV quota being introduced by the British government next year.
Carmakers must have 22 per cent of their UK sales made up of zero-emission vehicles in 2024. Meeting that target will require the importing of EVs built on the continent.
Most Japanese and South Korean EVs can be imported into the UK tariff-free under the terms of their post-Brexit trade deals. This would mean EU carmakers losing market share in the UK if their EVs are hit with 10 per cent levies.
Chinese-made vehicles already pay the tariffs but can compete with EU-made EVs because of their much lower starting price.
The Society of Motor Manufacturers and Traders, which represents the UK auto industry, has also warned that the introduction of tariffs on EU imports would slow the sale of EVs in the UK, as the extra cost would mean higher prices for consumers.
EU-based carmakers are hoping their national governments will pressure the commission to change its approach but admit that has not happened yet.
“No one really wants the political signal you get when customs duties on electric vehicles suddenly go up by 10 per cent,” said one industry official. “There is definitely a willingness to talk about this. But it’s still too early to say that the penny has finally dropped and that this will now be changed. We have a long way to go.”
In response to Szostak, UK trade minister Lord Dominic Johnson told the meeting of parliamentarians that the two sides should not “try to beggar each other” by building separate supply chains. He wanted “proper cross-border access to each others’ supply chains which makes them more efficient”.
“It’s a clear realisation among us all . . . that there is nothing to be gained by having unnecessary friction that reduces trade and welfare and wealth,” he added.
Additional reporting by Guy Chazan in Berlin
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