German automakers join race to avert Brexit disaster for EVs

The production line of Volkswagen AG VW ID.3Â and Cupra Born electric sedans at the Volkswagen Sachsen GmbH factory in Zwickau, Germany - Krisztian Bocsi/Bloomberg

The production line of the Volkswagen AG VW ID.3 and Cupra Born electric sedans at the Volkswagen Sachsen GmbH plant in Zwickau, Germany – Krisztian Bocsi/Bloomberg

German automakers are stepping up pressure on Brussels to avoid a post-Brexit ‘cliff edge’ for the auto industry as officials in Whitehall race to strike a deal.

Mercedes and Volkswagen joined other car brands this week in calling on the EU to delay the introduction of new rules that will affect cross-border trade with Britain.

Under new “rules of origin” which will come into force from January, 45% of the value of an electric vehicle (EV) must come from the UK or the European Union.

Cars that do not meet this threshold will be hit with a 10% tax if shipped to the EU from Britain, or vice versa. The industry fears massive price hikes could crush sales, warning jobs would be lost without action.

Last month, UK manufacturers publicly called on Westminster and Brussels to delay tariffs. JLR, Ford and Stellantis, owner of Vauxhall, have all sounded the alarm about the impending deadline.

Now Mercedes has joined the calls, becoming one of the first major German manufacturers to speak out publicly.

“We need more time for this transition and so we would appreciate political support, together with our UK partners, in this matter,” chief executive Ola Källenius said last week.

Ola Kaellenius, CEO of Mercedes-Benz Group AG - Alex Kraus

Ola Kaellenius, CEO of Mercedes-Benz Group AG – Alex Kraus

Fellow Volkswagen also urged officials to push back the deadline.

A spokesperson said: “The EU automotive industry has said it sees difficulty in complying with the next phase of the rules of origin (from 2024) and would welcome the extension of the rules of origin. sources for battery cells, batteries and electric vehicles until the end of 2026.”

BMW, which manufactures in Britain under the Mini brand, would also be in favor of a postponement.

Whitehall officials are now scrambling to avoid a ‘cliff edge’. Negotiations between the UK and the EU are progressing slowly, but Whitehall insiders are cautiously optimistic. Both sides will likely want a resolution given the importance of cross-border trade to the auto industry.

The tariffs were originally proposed as a way to prevent Britain becoming a backdoor for cheap Asian cars being imported into the EU and undermining local manufacturers.

However, the phasing in of the tariffs coincided with an industry-wide shift to electric vehicles and automakers struggled to get their supply chains in place in time to meet the deadline.

The factories needed to make electric motors and process minerals, not to mention the vast giga-factories needed to complete the goals, are all far away.

Richard Peberdy, Head of UK Automotive for KPMG, said: “The need for a higher percentage of an electric vehicle to come from the UK or the EU poses a significant challenge, especially more than battery production is still in its infancy in Europe”.

After the collapse of British Volt, which planned a huge battery factory in the northeast of England, the only existing electric car battery capacity in Britain belongs to Nissan.

A report published last week by think tank Policy Exchange said the government’s “erratic” interference in industrial policy was partly to blame for Britain’s struggling car industry.

While there are more gigafactories in development on the continent, the EU also needs more time to set them up.

German automakers also have good reason to want more time: Britain is Europe’s second-largest auto market, after Germany, and the top destination for European exporters, according to data from the Automobile Manufacturers’ Association. Europeans.

The EU exported over a million cars to the UK last year.

European automakers stand to lose the most if a solution cannot be found, says Andrew Thurston, tariffs consultant at MHA Accountants.

“If you add 10pc to the cost of a Volkswagen and compare that with something like a Kia [made in South Korea]currently, when you look at the current state of things with the cost of living, that could sway a buyer,” he says.

Most manufacturers want the tariff deadline to be pushed back to 2027. This would give all automakers more time to develop their local supply chains.

By 2027, a host of battery factories and production lines will likely be ready. Stellantis and Ford will have new battery-producing gigafactories in Europe that can supply UK factories without incurring tariffs, and Mini owner BMW has likely refined its plans to electrify its UK brand.

Ford is also aiming to build more electric motors for its electric vehicles at its Halewood plant near Liverpool.

Mike Hawes, head of industry group Society of Motor Manufacturers and Traders: “At a time when every country is accelerating its transition to zero-emission transport and global competitors are offering billions to attract investment in their industries, a pragmatic solution must be found. quickly.”

An EU official said: “The ATT [Trade and Cooperation Agreement] is the result of a negotiation in which both parties have agreed on an overall balance of commitments. This includes clear terms for rules of origin for cars and other products traded under the ATT.

“Any questions regarding the ATT and its functioning can be raised by either party in the bodies that have been set up by the ATT.”

A government spokesperson said: “The Business and Trade Secretary has raised concerns about the 2024 changes to the rules of origin for electric vehicles and their batteries with the EU and is determined to find a joint UK-EU solution, which ensures that the UK remains one of the best locations in the world for car manufacturing.

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