Time running out to avoid electric car and van tariffs

UK automotive’s potential to drive economic growth will be diminished without a deferral of upcoming rules of origin, says the Society of Motor Manufacturers and Traders (SMMT).

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, according to the automotive trade body.

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 SMMT says that it would ‘throttle’ the trade in EVs between the UK and EU.

The UK Government and most major European nations recognise the dangers of inaction and have called for a common-sense solution to ensure the free and fair flow of EVs across the Channel. However, the SMMT says that time is running out to secure a deal before the end of year deadline.

Major investment in UK automotive

The UK automotive industry has attracted approximately £20 billion in private investment in 2023, according to the SMMT – meaning this year has seen more investment announced than in all the years back to 2016 combined.

Last week, the Government committed a further £2bn for the sector, backed by an Advanced Manufacturing Plan and battery strategy.

Addressing industry leaders and politicians at the SMMT’s 106th Annual Dinner in London yesterday (Tuesday, November 28) evening, Alison Jones, SMMT president and senior vice president for global circular economy at Stellantis, praised the industry’s resilience and commitment to green growth.

“As an industry, we have moved forward despite the instability, despite legislative uncertainty, inflation and geopolitical risk,” she said.

“The industry has backed itself with big decisions on big investments to guarantee jobs and our future. We have seen major commitments in battery production, lithium mining, vehicle manufacturing, R&D and the aftermarket.

“Such investment – and our ability to remain competitive – is key to the continuation of a strong UK manufacturing base and a sector that sustains nearly a million livelihoods.”

Just last week, Nissan announced it will build three fully-electric models at its Sunderland plant as part of a £2bn investment by the manufacturer.

Mike Hawes, the SMMT’s chief executive, said: “The industry is betting big on Britain, and Government has rightly recognised the value that automotive manufacturing brings to the UK, backing our industrial transformation.

“These investments are, however, predicated on a strong domestic market.

“Incentives for business buyers must be matched with support for private buyers to ensure the maximum return on every penny already pledged to production.

“The prize for success will be a faster and fairer decarbonisation of Britain, ensuring millions have access to zero emission mobility.”

Fiscal incentives for business buyers, notably company car tax said the SMMT, have ensured this segment of the new EV market continues to perform strongly.

To move uptake to the mainstream, however, the SMMT argues that all purchasers need to be encouraged to switch.

Halving VAT on new EVs, for instance, would be a compelling and affordable measure, enabling manufacturers deliver larger volumes of zero emission vehicles and creating the conditions for greater UK supply chain investment, it said.