The European Union and the United Kingdom are planning to delay the imposition of electric vehicle tariffs, potentially offering a significant breather for Europe's automotive industry.
According to multiple people familiar with the matter, the EU is consulting industry stakeholders on a proposal to postpone the 10% tariff. Under the original arrangement, the tariff was set to take effect on most relevant vehicles starting January 1 next year. Two of the sources said the UK supports the plan.
The Brexit agreement that took effect in 2021 was intended to gradually raise the threshold for local content in vehicles, with tariff exemptions granted to those meeting the threshold, thereby incentivizing the development of Europe's domestic power battery supply chain.
However, the expansion of Europe's chemical and battery production capacity has fallen short of expectations, and many vehicle models still rely on battery packs and battery raw materials sourced from Asia.
Data from the European Automobile Manufacturers' Association (ACEA) shows that an estimated 520,000 electric passenger cars and vans will be traded in 2027, with approximately 82% of them — corresponding to a value of about 17.9 billion euros — expected to be subject to tariffs by then.
The association has called for postponing the stricter battery pack assembly requirements to 2030 and delaying the additional requirement for domestically produced cathode materials used in electrodes in Europe to 2032.
ACEA member automakers are concerned that the tariffs will drive up the prices of their own products and cause them to lose competitiveness in the UK market.
The two sides had previously pushed back the adjustment timeline for these rules of origin from 2024 to 2027, and the accompanying legal documents at the time stated that no further extension would be granted.
Automakers would welcome any postponement plan, but Europe's chemical industry has been vigorously lobbying against a delay, arguing that it would undermine demand for domestic products.
Many companies have already invested tens of millions of euros to establish cathode active material production capacity in Europe — these materials are the core raw materials that make up the cathode of electric vehicle batteries.
Two of the sources said the European Commission's proposal still has room for adjustment; the length of the postponement is shorter than what ACEA has requested, with the aim of preserving market demand for EU-made batteries as much as possible.
According to the sources, the proposal includes two options: one is a direct one-year postponement; the other is a two-year flexible mechanism that allows automakers to use domestic-sales vehicles equipped with compliant batteries to offset the quota for vehicles with non-compliant batteries when exporting.
An industry insider commented that this mechanism is quite unusual but has the potential to be implemented: "We are studying how to maximize compliance under this set of rules and how it fits with our existing operating model."
Two UK officials said that substantive negotiations on the rules of origin extension are expected to begin after the EU-UK summit on November 20.
A report this month from the Society of Motor Manufacturers and Traders (SMMT) shows that although the UK has invested approximately 72 billion euros in battery and electric vehicle manufacturing since 2017, about two-thirds of its lithium-ion batteries are still imported; the UK's domestic battery manufacturing base is even weaker than that of the EU.
SMMT Chief Executive Mike Hawes said: "UK-EU automotive trade is worth 80 billion euros annually and supports millions of jobs." He called for "a pragmatic solution for the 2027 rules of origin to build a more deeply integrated supply chain."
The report, written by the consulting arm of the London School of Economics and Political Science, proposes that given the interdependence between the two sides, the UK and EU should align their policy approaches.
The EU receives 60% of the UK's automotive exports, while 30% of the EU's automotive exports go to the UK, which is also the largest single market for EU-produced electric vehicles.
The report calls for "moderate flexibility" on rules of origin and the introduction of a joint battery strategy.
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