As supply chain bottlenecks ease, global trade is increasingly on the agenda for boosting automotive sales and the delivery of low emission technologies – but with automotive products subject to geopolitical, environmental and industrial policies, navigating business across multiple time zones is as complex as ever.
These were just some of the challenges explored at SMMT’s Global Trade Conference – a one-day virtual event bringing high-profile speakers to the discussion table – from senior global executives and policy leaders to regional trade experts and international media.
These included Kemi Badenoch MP, Secretary of State for Business and Trade, who told the conference: “Recent investment decisions are a huge vote of confidence in the UK automotive sector.
“We will continue to support the industry to make the UK the best place in the world to produce and design electric vehicles.
“We recognise the challenge your industry faces and government is listening, we have heard your concerns including on rules of origin (ROO) – government is doing everything it can to find a solution.”
On this point, SMMT has urged the EU and UK to strike an immediate agreement to avoid Brexit-related tariffs on EVs. The plea, echoed by the European Automobile Manufacturers’ Association (ACEA), is for a delay to the implementation of tougher new ROO requirements on batteries which could render EU and UK made electrified vehicles uncompetitive in each others’ markets.
As the clock ticks down to the 1 January 2024 ROO introduction, new calculations lay bare the impact the new rules, set under the EU-UK Brexit deal, would have on vehicle affordability and competitiveness.
Electrified vehicles that do not meet the new thresholds will be subject to a 10% tariff when traded across the Channel, resulting in a combined cost of £4.3 billion.
For the consumer, this could mean an average price hike of £3,400 on EU-manufactured battery electric vehicles (BEVs) bought by British buyers, and a £3,600 rise on UK-made BEVs sold in Europe.
Gareth Thomas MP, Shadow Minister for International Trade, told the event that ROO requirements risk putting up the price of EVs very significantly for British consumers – and that more uncertainty threatens investment worth billions of pounds.
“We know that if Britain is going to be home to the development of more innovative solutions to decarbonising transport, then the automotive sector is going to need certainty and stability”, he said.
Even against a backdrop of the pandemic, crippling semiconductor shortages and trade tensions, EV trade between Britain and the European Union has more than doubled since the EU-UK Trade and Cooperation Agreement (TCA) was signed – growing by 104% in the preceding three years.
That represents a jump from £7.4 billion in 2020 to £15.3 billion last year, though much of this uplift has been achieved in the last 12 months.
That beneficial relationship has helped total UK automotive global trade in finished vehicles and components to get back on track following the pandemic, and it is currently on course to be worth more than £100 billion by the end of 2023, according to SMMT’s new Open Roads report.
Such growth could be undermined, however, if ROO requirements – which were agreed before the slowdown caused by the pandemic – come into force in just 75 days’ time.
Sigrid de Vries, Director General at ACEA, said: “It’s not just about having a thriving battery industry in Europe, but a thriving auto industry in Europe & UK. We make it very clear we would like to see the rules of origin temporarily liberalised to policymakers both sides of the channel.
“The UK is one of the most important markets for EU electric vehicles exports – it’s difficult enough to build up this value change so it would not be sensible to put tariffs in place.
“Our industry Is a global one, we operate in the EU, UK, USA and China so this free and fair open trade is very important. We support an ambitious and positive trade agenda which brings forward positive relationships once again.”
With almost half (49.1%) of all new BEVs registered in the UK in the first half of the year coming from the EU, any cost increase would act as a barrier to uptake, undermining their competitiveness in an important and growing market.
Furthermore, the application of a 10% tariff on electrified vehicles alone would undermine shared ambitions to be global leaders in zero emission mobility, holding back markets and undermining the drive to deliver net zero, given road transport remains the biggest contributor to overall carbon emissions.
Conventional petrol and diesel vehicles would escape tariffs, meanwhile, which would have the perverse effect of incentivising the purchase of fossil fuel-powered vehicles.
Such a scenario would not only steer British vehicle buyers away from buying the very vehicles needed to hit net zero, it could also lead to a reduction in consumer choice if any electrified models become uncompetitive in the marketplace overnight.
The challenge comes at a crucial time, with manufacturers also facing the UK Zero Emission Vehicle Mandate, which is likely to come into force on the same 1 January 2024 date and compel them to sell ever-increasing numbers of zero emission models, starting at 22% next year and rising to 80% by 2030.
According to SMMT, a three-year delay to the introduction of the stricter rules of origin is a pragmatic solution.
It would provide the necessary time for EU and UK gigafactories to come on stream as well as helping the development of local battery parts and critical mineral supply chains.
The postponement is also something that can be readily achieved within the existing TCA framework, avoiding formal re-negotiation and delivering a boost to EU and UK manufacturers.
Mike Hawes, SMMT Chief Executive, 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.”
Also launched at the conference, Open Roads – Driving Britain’s global automotive trade outlined the critical importance of worldwide trade to the UK automotive sector with key recommendations to assure growth, jobs and prosperity in the coming years, including:
- Modernisation of current continuity agreements combined with the negotiation of new Free Trade Agreements (FTAs) setting realistic content requirements for batteries and related components.
- The renewal of agreements with South Korea, Mexico and Canada as well as negotiations with India and the Gulf Cooperation Council could offer enhanced market access and commercially meaningful opportunities.
- With few exceptions, international trade diplomacy is shifting its focus from traditional FTA negotiations to other priorities, including trade-related investment measures, level playing field instruments and new corporate sustainability obligations – these must be considered in future negotiations.
- Strengthening the UK and broader European supply chain for batteries and critical raw and refined minerals and embedding recycling and remanufacturing as part of a sustainable and resilient automotive business model.
- Regulatory challenges and taxation can greatly reduce market access and even offset FTA benefits. This must also be considered in all future trade deals.
Exports of automotive products already represent almost 12% of all UK exports of manufactured goods, just a little step away from the 13% threshold the country recorded in pre-pandemic times.
Alessandro Marongui, Senior Trade Policy Manager at SMMT, who introduced the new report said: “UK-EU TCA requirements for batteries in 2024 will be unattainable because there are simply not enough European-made parts and critical minerals.
“The expected impacts are huge, but the solution is simple: do the right thing, agree to a three-year delay.”