The EU and the UK appear to be moving towards another delay in the stricter rules of origin for electric vehicles. According to the Financial Times, citing multiple sources familiar with the matter, the European Commission is currently consulting the industry on corresponding proposals. The UK government is also reportedly supporting a postponement. Without an agreement, a 10 per cent tariff would apply from 1 January 2027 on the import of certain electric vehicles between the EU and the UK. While the UK produces vehicles such as the Nissan Leaf and several electric vans from Stellantis in large quantities for export to the EU, a wide range of electric vehicles are imported into the UK from the EU.
The background to this is the rules of origin agreed in the Brexit trade deal. These are intended to gradually ensure that a larger share of the value added for electric vehicles and their batteries comes from the EU or the UK. The current transitional rules expire at the end of 2026. From 2027, at least 55 per cent of the vehicle’s value must originate from the EU or the UK. For battery cells and modules, the required regional value added increases to 65 per cent, and for battery packs to 70 per cent. If these requirements are not met, the aforementioned 10 per cent tariff will apply.
ACEA warns of billion-euro burden
The European automotive industry considers these requirements premature, given the slow progress in establishing domestic battery production. The manufacturers’ association ACEA estimates that around 520,000 electric cars and vans will be exported from the EU to the UK in 2027, with an estimated value of €17.9 billion. According to the association, approximately 82 per cent of these – around 426,000 vehicles – would not meet the stricter rules of origin. This would result in additional tariff costs of around €1.47 billion for 2027 alone. Manufacturers fear this could put them at a further disadvantage compared to Chinese competitors in the UK market.
In September, ACEA proposed a staggered delay. Under this proposal, the current requirements – whereby the assembly of the battery pack in the EU or UK is sufficient – would remain in place until the end of 2029. From 2030, battery cells would also have to originate from the region. For active cathode materials, which are essential components of the positive electrode in a battery cell, the requirement would only take effect from 2032. However, according to the Financial Times, the European Commission is reportedly considering shorter transition periods than those requested by ACEA.
European Commission examining a range of options
According to the report, at least two options are under discussion. One involves a simple one-year delay. Another proposal would allow manufacturers, over a two-year period, to offset non-compliant vehicles with batteries from third countries by selling compliant models in their respective home markets. This would enable companies to balance their exports with domestic sales. An industry representative described the model to the Financial Times as unusual but potentially workable. No decision on this has yet been made.
However, the plans are not universally supported. In particular, the European chemical industry opposes a further delay. Companies have already invested significant sums in European production of active materials for battery cathodes and fear that a postponement could further delay demand for their products. The European Commission thus faces a conflict of interest: on the one hand, the rules of origin are intended to encourage investment in European battery supply chains, while on the other, they risk imposing significant short-term competitive disadvantages on automakers.
Close interdependence of both markets
The UK automotive industry is also pushing for a pragmatic solution. The industry association SMMT points to the close interdependence of both markets. According to a study commissioned by the SMMT, investments totalling an estimated €72 billion have been made in battery and electric vehicle production facilities since 2017. However, the UK still imports around two-thirds of the lithium-ion batteries it needs. SMMT CEO Mike Hawes stated: “The UK and EU are bound by €80 billion in annual automotive trade and millions of jobs.” He called for a pragmatic solution for the rules of origin from 2027 and more integrated supply chains.
The EU and the UK has already delayed the stricter rules once, at the end of 2023 (DE). Originally, the higher requirements were supposed to take effect from 2024. Following negotiations at the time, both sides agreed to maintain the existing transitional rules until the end of 2026. However, the decision explicitly stated that no further delays were envisaged. According to the Financial Times, serious negotiations between London and Brussels on another postponement are set to begin after the EU-UK summit on 20 November.
UK also wants to be part of ‘Made in Europe’
The discussion is also taking place against the backdrop of the planned ‘Made in Europe’ industrial policy under the EU’s Industrial Accelerator Act, which aims to prioritise products from the EU in public procurement and state funding programmes, including for electric vehicles. It is conceivable that the European Commission and the UK could put together a comprehensive package that includes both the delay in EV tariffs and the equal treatment of the UK under the ‘Made in Europe’ rules. The prime ministers of Germany’s so-called ‘automotive states’ – Baden-Württemberg, Bavaria, and Lower Saxony – have already called for the inclusion of not only EU countries but also the UK, EEA and EFTA states (Iceland, Liechtenstein, Norway, and Switzerland), as well as other established partners, in the ‘Made in Europe’ rules.
ft.com, smmt.co.uk (Study)
