Fleets face electric vehicle price hike without EU agreement

Battery electric vehicles (BEVs) made in the EU could be hit with a £3,400 tax hike when sold in the UK if new rules of origin are implemented in January.

The UK-EU Trade and Cooperation Agreement (TCA) temporarily exempted electric vehicles (EVs) from the rules that said products must be substantially made in Britain or the bloc to qualify for the EU’s zero tariff, zero quota regime, because EV batteries are predominantly imported from Asia.

The tariff exemptions, which were agreed as part of the Brexit deal, are due to end from January 1, 2024.

Unless a new deal can be struck, under the more restrictive rules the only way to avoid these duties will be to source all battery parts and some critical battery material in the EU/UK, which manufacturers say is practically impossible to achieve today.

The Society of Motor Manufacturers and Traders (SMMT) is urging the EU and UK to strike an immediate agreement to avoid damaging Brexit tariffs on electrified vehicles.

New analysis by the trade body says that electrified vehicles that do not meet the new thresholds will be subject to a 10% tariff when traded across the Channel, resulting in a combined cost of £4.3 billion.

This could mean an average price hike of £3,400 on EU-manufactured BEVs bought by British buyers, and a £3,600 rise on UK-made BEVs sold in Europe.

Mike Hawes, the SMMT’s chief executive, said: “UK Automotive is a trading powerhouse delivering billions to the British economy, exporting vehicles and parts around the world, creating high value jobs and driving growth nationwide.

“Our manufacturers have shown incredible resilience amid multiple challenges in recent years, but unnecessary, unworkable and ill-timed rules of origin will only serve to set back the recovery and disincentivise the very vehicles we want to sell.

“Not only would consumers be out of pocket, but the industrial competitiveness of the UK and continental industries would be undermined.

“A three-year delay is a simple, common-sense solution which must be agreed urgently.”

EU-UK electrified vehicle trade has more than doubled recently, enabled by the EU-UK Trade and Cooperation Agreement (TCA).

It has grown 104% in the three years since the TCA was signed, up from £7.4 billion at the end of 2020 to £15.3 billion last year, although much of this uplift has been in the last 12 months.

The situation has helped total UK automotive global trade in finished vehicles and components get back on track following the pandemic, and it is currently on course to be worth more than £100 billion by the end of 2023, according to the latest SMMT report, Open Roads – Driving Britain’s global automotive trade, published today (Wednesday, October 18).

Conventional petrol and diesel vehicles would escape tariffs, which the SMMT says would have the perverse effect of incentivising the purchase of fossil fuel-powered vehicles.

Such a scenario would not only steer British car buyers away from buying the very vehicles needed to hit net zero. It could also lead to a reduction in consumer choice if any electrified models become uncompetitive in the marketplace overnight, the SMMT argues.