Tariffs on electric vehicles avoided as UK and EU extend trade rules

To access zero tariffs under the Trade and Cooperation Agreement (TCA), companies must demonstrate that their products include a minimum level of EU or UK manufactured content. These requirements are known as “rules of origin” and help determine where products originate rather than where they are shipped to ensure that lower tariffs are correctly applied to eligible products and support competition in the market.

Under the existing Trade and Cooperation Agreement, a phased approach was introduced for electric vehicles and batteries that required gradual increases in these rules of origin requirements; The first increase would take effect on January 1, 2024, before a final increase starting January 1, 2027.

This phased approach would increase content requirements for electric vehicles to be eligible for tariff-free trade over the next three years. They were initially designed to reflect the industry's capacity at the time and incentivize investment in domestic battery production.

However, in recognition of the global supply chain disruption caused by the COVID-19 pandemic and Russia's illegal invasion of Ukraine, the UK and EU agreed to cancel the 2024 changes, meaning The existing rules of origin will last three more years. years until the end of 2026.

This agreement facilitates tariff-free trade between the UK and EU in electric vehicles and prevents 10% tariffs from being applied to this trade from January. The industry expects this to save car manufacturers and consumers up to £4.3 billion in additional costs and provide long-term certainty to the sector as we continue to expand our domestic battery supply chain and work to meet our net zero commitments.

We have listened to the concerns of the auto industry and have made it a priority to find a joint solution with the EU on electric vehicle tariffs that works for both sides. Today's agreement is further evidence that our more constructive relationship with the EU is delivering results for UK citizens and businesses, building on the Windsor Framework and the tailored agreement reached on the Horizon research programme.

Prime Minister Rishi Sunak said:

We have been listening to industry concerns throughout this process and I know that this development will be a great relief to the industry.

The UK government is offering a pragmatic solution to keep costs down for businesses and people at home who want to switch to electric vehicles.

We are also leaving no stone unturned to strengthen our domestic battery industry and provide long-term certainty to our thriving automotive sector to help them put down roots in the UK.

Business and Trade Secretary Kemi Badenoch said:

This Government is determined to ensure that the UK remains one of the best places in the world for car manufacturing. We listened to the sector's concerns and worked hard with our counterparts in Brussels and across Europe to deliver a solution that works for both parties.

Resolving issues like this is part and parcel of being an independent trading nation. This very good result is a visible demonstration that the UK is delivering on its business with trading partners around the world.

The UK will also look to agree to extend equivalent rules of origin in the UK-Turkey preferential trade deal ready by the end of the year, in a further boost for UK car companies that are major exporters to the Turkish market, such as Ford . . This will ensure existing rules of origin last for another three years until the end of 2026, and comes as the UK looks to start negotiations for a new modern free trade agreement with Turkey next year.

The deal comes as both the UK and EU pledged to work together to strengthen our domestic battery supply chain. In the Autumn Statement, the Chancellor announced that we will make £4.5 billion available over five years through the Advanced Manufacturing Plan to unlock private investment in strategic manufacturing sectors across the UK.

This includes more than £2 billion in research and development and capital funding for the automotive sector to support the manufacturing and development of zero-emission vehicles, their batteries and the supply chain, building on existing support.

Last month we published the UK's first battery strategy, outlining our plan for the UK to attract investment and achieve a globally competitive battery supply chain by 2030. In the strategy, we announced a further investment of £ 50 million to develop the UK battery industry and to ensure a resilient UK manufacturing supply chain. The battery sector alone could create 100,000 highly paid and skilled jobs in the UK.

Mike Hawes, chief executive of SMMT, said:

Postponing rules of origin is a victory for motorists, the economy and the environment. Maintaining tariff-free trade on electric vehicles will ensure consumers retain the widest and most affordable model choice, at a time when we need all drivers to make the switch.

Governments have listened to the sector and acted to safeguard the competitiveness of the EU and UK automotive industries and give the Anglo-European battery industry the critical time it needs to catch up. The move will help reduce carbon emissions, support growth and jobs, and is the right decision for the decarbonisation of road transport.

Lisa Brankin, president of Ford of Great Britain, said:

On behalf of Ford in the UK, I want to thank policymakers in London and Brussels for listening and engaging with a united automotive industry. Today's decision to avoid unnecessary tariff costs is an important moment that will protect jobs, support countless investments and, most importantly, help keep costs down for consumers and businesses on their journey to an all-electric future.

Also very welcome is the Government's focus on updating battery trade rules between the UK and Turkey to reflect today's agreement with the EU. Our dedicated Ford Pro organization is committed to helping businesses go electric and this quick action will help us continue to do so.

Maria-Grazia Davino, Group CEO of Stellantis UK, said:

We welcome the agreement between the EU and the UK to maintain the current rules of origin for battery requirements until January 2027.

We can now focus on our planned acceleration towards electrification, keeping costs down for our customers. The agreement demonstrates the importance of the EU-UK trading relationship and maintaining the UK's competitiveness.

BMW Group said:

We welcome the agreement reached between the European Union and the United Kingdom on their Trade and Cooperation Agreement.

This planning certainty will enable the BMW Group to improve its manufacturing and sales footprint in this highly competitive market.

The government has already spent more than £2 billion to accelerate the transition to zero-emission vehicles, including reducing the upfront cost of electric vehicles and supporting the rollout of charging infrastructure. There are now more than 52,600 public charging points across the UK, an increase of 44% since this time last year.

Earlier this year, we also published the zero-emission vehicle mandate that will come into effect in 2024, setting the percentage of new zero-emission cars and vans that manufacturers will be required to sell each year, starting with a requirement of 22% of new vehicles. Cars sold in 2024 will be zero-emission vehicles.

The mandate ensures that the UK has the most ambitious regulatory framework of any country for the switch to electric vehicles, achieving 80% of new cars and 70% of new vans to be zero emissions by 2030, providing certainty and long-term direction for the sector as we move forward. sets the path to phase out all new diesel and petrol cars and vans by 2035, although some manufacturers already plan to reach 100% sooner.

The UK approach has already attracted record investments in gigafactories and electric vehicle manufacturing. This includes the recent announcement of a £2bn investment led by Nissan to produce two new electric vehicles in Sunderland, Tata's investment of more than £4bn in a new 40GWh gigafactory, BMW's investment of 600 million pounds to build next-generation MINI EV in Oxford, £380 million investment in Halewood to manufacture electric propulsion units and Stellantis' £100 million investment in Ellesmere Port for electric van production.