Change in trade rules could make EVs £3,400 more expensive for UK buyers

Changes to the rules of origin (ROO) requirements – starting in 2024 – could make electric cars even more expensive to produce. The Society of Motor Traders and Manufacturers (SMMT) has done some maths and it could cost consumers an average of £3,400, so it's calling for a delay.

As Stellantis admitted back in May, the rule changes have got car makers a fair bit worried. It’s all to do with the change in rules since the UK’s exit from the European Union (EU) and to understand the concerns, you need a bit of backstory.

Currently a trade and cooperation agreement (TCA) between the EU and the UK contains – as you might expect – a lot of rules about trade between the two geographies. In this case, the rules of origin for goods imported and exported.

For a moment, consider the volumes at stake. According to the European Automobile Manufacturers’ Association (ACEA) “over 20 per cent of the 6.3 million EU vehicle exports went to the UK in 2022”. Similarly, 62 per cent of UK vehicle exports went to the EU in the same year. Most vehicles produced in the UK currently qualify for preferential tariffs.

To qualify for low or no tariffs, certain criteria must be met. Criteria like 1) assembling the car in the UK or the EU and 2) ensuring that the materials used in assembly come from either of those regions. And most importantly, 3) that the value of the materials which don’t come from either region don’t exceed 40 per cent of the value of the vehicle.

The rule change may see that 'non-originating' figure drop from 40 to 10 per cent. Exceeding 10 per cent would, under the rules, make the vehicle liable for a 10 per cent tariff.

That’s where the issues come in for electric cars. EV batteries account for anything between 19-32 per cent of the total vehicle value, according to Statista.

Rare earths and precious elements, like lithium, cobalt and neodynium are needed for battery and electric motor production, they're expensive commodities and aren't resources the UK or EU have a ready supply of.

Sure, the geographies are in the process of setting up these crucial supply chains, but like any transformative change, that'll take a bit of time. Meanwhile, importing that stuff to stick in the batteries, to go in the cars does not a tariff-free criteria create.

SMMT's got to the £3,400 calculation based on a 10 per cent tariff applied at the factory gate cost (not the retail cost). EVs still tend to be a much higher outlay than fossil-fuelled equivalents and currently there aren't incentives for UK buyers of passenger cars to make the switch to electric – at least in the form of cold, hard cash.

Mike Hawes, Chief Executive of SMMT, 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.”

Do you agree that any changes should be held off?