Brexit could pose a risk to EU exports of electric cars to the UK, potentially adding over €4.3 billion in costs to the European industry, according to representatives of the sector in Brussels. The Brexit trade deal stipulates that if 45% of an electric vehicle's value does not originate in the EU or the UK, 10% tariffs will be imposed on exports to the EU. This has prompted three major car manufacturers to call for talks with the British government to address the issue. The European Automobile Manufacturers' Association (ACEA) has quantified the potential risk, stating that it could significantly impact manufacturers shipping electric vehicles from the EU to the UK.
Exports of electric vehicles from ACEA members to the UK were valued at approximately €4.3 billion in 2022, with the market projected to grow as the supply chain recovers and the shift away from combustion engines gains momentum. ACEA, which represents 75% of the EU auto industry, estimates that total sales could reach €25 billion to €30 billion by 2026. However, the imposition of a 10% tariff could result in costs of up to €4.3 billion being passed on to consumers, absorbed by the industry, or a combination of both between 2024 and 2027.
A major challenge lies in the lack of understanding regarding the cost breakdown of an electric vehicle, particularly the refinement and processing of chemicals in batteries, which is largely dominated by China. The battery constitutes a significant portion of an electric vehicle's cost, ranging from 35% to 45% for passenger cars and between 45% and 50% for heavy-duty trucks. ACEA has formally requested another three years to scale up battery supply and chemical refinement in Europe, arguing that the current requirements for battery assembly and cathode material sourcing are impractical.
The trade deal currently mandates that the battery cell be assembled in Europe, but starting next year, the cathode material must also originate in Europe, including the UK, which ACEA claims is unfeasible. The association suggests the implementation of a bridging mechanism for the next three years to address the challenges faced by the industry. While the option of joining the pan-European Mediterranean agreement has been proposed, ACEA argues that it does not resolve the issue of China's dominant role as a supplier of refined chemicals.
Efforts to amend the trade deal in relation to the automotive sector continue, but the European Commission has stated that a review before 2026 is unlikely. Discussions surrounding review clauses in the trade deal primarily concern its implementation. The EU spokesperson acknowledged ACEA's estimates, but it remains to be seen how negotiations will unfold.