7 Nov 23

Fleets face cliff-edge concern over €4,000 tariffs on EVs

Post-Brexit trade tariffs will apply from January 2024 unless the European Commission grants an extension.

Fleets face an immediate price increase of €4,150 (£3,400) per electric vehicle at the end of this year as the post-Brexit tariff-free trading agreement comes to an end.

The EU-UK Trade Cooperation Agreement (TCA) came into force in May 2021 and finishes on 31 December, after which date import tariffs of 10% will be applied to the price of electric vehicles that cross the Channel in both directions, due to rules of origin requirements.

These rules dictate that until 1 January 2024, only 40% of the value of an electric vehicle and 30% of its battery pack must originate in the UK or EU to avoid the tariffs. From the start of next year, the thresholds are scheduled to increase to 45% of an EV’s value, 50% of its battery cell and 60% of its battery pack. And at the start of 2027 there will be another stepchange in the percentages, rising to 55% of the value of the vehicle, 65% of the battery cell and 70% of the battery pack.

The only way to avoid new duties would be for vehicle manufacturers to source all battery parts and some critical battery material in the EU/UK. OEMs are making massive investments in European battery supply chains, but they need more time to build up the scale required to meet the rules of origin.

ACEA appeals to EC

As a result, the European Automobile Manufacturers’ Association (ACEA) has written to Ursula Von Der Leyen, President of the European Commission, calling for urgent action to avoid the cliff-edge deadline.

ACEA said the tariff could cost EU vehicle makers €4.3 billion over the next three years, potentially reducing electric vehicle production by some 480,000 units. The UK is the number one export market for EU-made EVs, and 49.1% of all new EVs registered in the UK in the first half of 2023 came from the EU.

The new tariffs would not apply to EVs manufactured outside Europe, which would effectively make battery-powered cars made by global OEMs even more price competitive.

Based on the average price paid for EVs, the 10% tariff would push up prices for British drivers by an of £3,400 for EU-manufactured BEVs, and by €4,150 for UK-made EVs sold in the EU.

Rules do not apply to ICE vehicles

In a further twist, the rules would not apply to petrol and diesel vehicles, because these satisfy the rules of origin, which could delay the EU’s and UK’s decarbonisation plans by widening the gap between EV and ICE acquisition prices.

Luca de Meo, ACEA President and CEO of Renault Group, said: “Driving up consumer prices of European electric vehicles, at the very time when we need to fight for market share in the face of fierce international competition, is not the right move – neither from a business nor an environmental perspective.

“Europe should be supporting its industry in the net-zero transition as other regions do – not hindering it. There is a very simple and straightforward solution: extend the current phase-in period for battery rules by three years. We urge the [European] Commission to do the right thing.”

Industry calls for three-year extension

ACEA and the SMMT, which represents UK manufacturers, have called for a three-year extension to the current tariff-free trading arrangement, allowing enough time for Europe’s gigafactories to come on stream.

Mike Hawes, Chief Executive of the SMMT, said: “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.”

Fleet alarm

The prospect of tariffs being applied to EVs crossing the Channel is a serious concern for fleets and leasing companies.

Jon Lawes, Managing Director at Novuna Vehicle Solutions, one of the UK’s largest fleet operators, said: “With the UK Government and European Commission remaining at loggerheads over whether to delay or revise the planned taxes on EVs due to hit the automotive sector from January 1, the industry faces a difficult few months. The clock’s ticking and we need urgent clarity on whether there will be any flexibility on this deadline, to avoid eroding confidence in the EV market.” 

Image: Shutterstock 1463290457

Authored by: Jonathan Manning