German car makers join the race to avert a Brexit ‘cliff edge’ disaster for EVs

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

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

German car makers are ramping 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 have this week joined other car marques in calling for the EU to delay the introduction of new rules that will hit cross-border trade with Britain.

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

Cars that fail to achieve this threshold will be hit with a 10pc tax if shipped to the EU from Britain, or vice versa. The industry fears that the massive price hikes will crush sales, warning that jobs would be lost without action.

British manufacturers last month publicly called for Westminster and Brussels to delay the tariffs. JLR, Ford and Stellantis, which owns Vauxhall, all raised the alarm about the looming deadline.

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

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

Ola Kaellenius, chief executive officer of Mercedes-Benz Group AG - Alex Kraus

Ola Kaellenius, chief executive officer of Mercedes-Benz Group AG – Alex Kraus

Country-mate Volkswagen has also urged officials to push back the deadline.

A spokesman said: “The automotive industry in the EU has stated that it sees difficulties in meeting the next phase of rules of origin (from 2024) and would welcome the extension of the current rules of origin for battery cells, battery packs and electric vehicles until the end of 2026.”

BMW, which manufactures in Britain under the Mini brand, is understood to also support a delay.

Officials in Whitehall are now scrambling to avert a “cliff edge”. Negotiations between the UK and EU are understood to be progressing slowly, but Whitehall insiders are cautiously optimistic. Both parties are likely to want a resolution given the importance of cross-border trade to the car industry.

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

However, the phase in of the tariffs has coincided with an industry-wide shift to EVs and auto companies have struggled to stand up their supply chains in time to meet the deadline.

The necessary plants to make electric motors and process minerals, let alone the vast gigafactories needed to hit the targets, are all a long way off.

Richard Peberdy, UK head of automotive for KPMG, said: “The need for a higher percentage of an electric vehicle to be sourced from within the UK or EU poses a significant challenge, especially as battery production is still in its infancy within Europe.”

After the collapse of British Volt, which planned a vast battery factory in the North East of England, Britain’s only existing EV car battery capacity is owned by Nissan.

A report last week from the Policy Exchange think tank said the Government’s “erratic” meddling in industrial policy was partly to blame for Britain’s ailing car industry.

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

German car makers also have good reason to want more time: Britain is the second-largest car market in Europe, after Germany, and the number one destination for EU exporters, according to data from the European Automobile Manufacturers’ Association.

The EU exported more than 1m cars to the UK last year.

European car makers stand to lose the most if a solution can’t be found, says Andrew Thurston, a customs duty consultant with accountants MHA.

“If you add 10pc onto the cost of a Volkswagen, and you compare that with something like a Kia [made in South Korea], currently, when you look at the current state of affairs 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 car makers more time to build up their local supply chains.

By 2027, a slew of battery plants and production lines are likely to be ready. Stellantis and Ford will have new gigafactories churning out batteries in Europe, which can supply British factories without incurring tariffs, and Mini owner BMW is likely to have refined its plans for electrifying its British brand.

Ford also aims to build more electric motor units for its EVs in its Halewood plant near Liverpool.

Mike Hawes, boss of industry group the Society of Motor Manufacturers and Traders: “At a time when every country is accelerating their 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 TCA [Trade and Cooperation Agreement] is the outcome of a negotiation in which both sides agreed to an overall balance of commitments. This includes clear terms for rules of origin for cars and other products traded under the terms of the TCA.

“Any issues regarding the TCA and its operation can be raised by either side in the bodies that were set up by the TCA.”

A Government spokesperson said: “The Business and Trade Secretary has raised concerns about the 2024 Rules of Origin changes for Electric Vehicles and their batteries with the EU and is determined to find a joint UK-EU solution, which ensures the UK remains one of the best locations in the world for automotive manufacturing.”

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