The EU and UK car industries are calling for an urgent extension of tariff suspensions on electric vehicle (EV) imports, as they are unlikely to meet the “rules of origin” requirements by 2027. Current industry forecasts suggest battery production in the EU will reach just under 20% by the deadline, failing to meet the thresholds required to avoid significant import duties under the Brexit trade deal.
Why are electric vehicle tariffs a looming threat to the EU and UK?
The tension stems from the EU-UK Trade and Cooperation Agreement, which has been in place since 2021. To avoid tariffs, vehicles must meet strict “rules of origin” that mandate a specific percentage of a car’s value be produced within Europe.
Under the 2020 Brexit deal, 55% of a car’s total value must be manufactured in Europe by January 1, 2027. However, the requirements for batteries are even more stringent. To qualify for tariff-free sales, 70% of the battery pack and 65% of the battery cell must be made in the EU or the UK.
While the European Commission previously agreed to suspend these rules for three years to ease the transition, the industry warns that the window is closing. With only seven months remaining in the current suspension period, manufacturers are signaling that the “made in Europe” battery targets remain out of reach.
The original goal was for 30% of battery packs and cells to be produced domestically within a few years of the deal. This was intended to incentivize massive investment in local manufacturing, but global disruptions have stalled that progress.
What is stalling battery production in Europe?
The gap between ambition and reality is widening. According to Jonathan O’Riordan, international trade director at the European Automobile Manufacturers’ Association (ACEA), the industry previously forecasted that 60% of batteries across all segments—including cars and trucks—would be made in Europe by 2027.
The new reality is much bleaker. O’Riordan estimates that by January 1, 2027, “just under 20%” of batteries will actually be produced in the EU. While the UK’s production levels are expected to be higher than the EU’s, they still fall short of the necessary targets.
The structural barriers to growth
Several factors have converged to create this manufacturing bottleneck:
- Supply Chain Volatility: The industry has struggled with the aftermath of COVID-19 and critical semiconductor shortages triggered by Russia’s invasion of Ukraine.
- Raw Material Dominance: China maintains a tight grip on critical raw materials, specifically lithium and the refined versions required for battery cells.
- High Operational Costs: Manufacturing isn’t just slow; it’s expensive. O’Riordan noted that the cost of battery manufacturing in Europe remains approximately 30% higher than in China.
- Infrastructure Lead Times: Establishing a domestic supply chain is a multi-year endeavor. Stefan Scherer, head of Europe’s only lithium factory, stated that building a fully fledged production chain, from mining to processing, can cost upwards of $750 million.
Sigrid de Vries, ACEA’s director general, characterized the situation by stating that “the battery drive train development in Europe was far too slow,” and called for a significant policy shift from the European Commission to accelerate the transition.
How will the industry protect competitiveness moving forward?
Automotive leaders are now pushing for a “pragmatic solution” to prevent a wave of “self-defeating tariffs.” Mike Hawes, chief executive of the UK’s Society of Motor Manufacturers and Traders (SMMT), argued that current requirements are based on assumptions that have not materialized despite significant investment.
The fear is that if tariffs are imposed, they will hit the very vehicles consumers are being encouraged to buy, potentially stalling the green transition and harming the automotive partnership between the UK and the EU. There is also a growing concern regarding Chinese over-production and favorable exchange rates, which industry experts fear could lead to the “cannibalization” of European manufacturing.
Watch the upcoming meeting of European leaders on June 18. China is a primary item on their agenda, and the outcome of these discussions will likely dictate whether the EU adopts a more protectionist or a more collaborative stance toward EV imports.
As the industry waits for a decision, the focus remains on whether the European Commission will prioritize domestic industrial protection or the immediate affordability of electric vehicles for the European public.
Frequently Asked Questions
What are “rules of origin” in the Brexit trade deal?
Rules of origin are requirements that dictate how much of a product must be made within a specific region (like the EU or UK) to qualify for zero-tariff trade. For EVs, this includes specific percentages for both the vehicle’s total value and its battery components.
Why is battery production in Europe falling behind?
Production is hindered by high manufacturing costs (30% higher than China), long lead times for opening mines, and China’s control over critical raw materials like lithium.
When do the current tariff suspensions end?
The European Commission previously agreed to suspend the rules for three years, a period that is set to expire at the end of this year.
What do you think? Should the EU prioritize local manufacturing even if it makes EVs more expensive, or should they lower tariffs to speed up the transition? Let us know your thoughts in the comments below!
