Brexit poses an unexpected challenge to the electric car, with German, Ford and even British brands demanding renegotiation

Yesterday, the Stellantis group caused a stir in the UK by directly expressing its desire to renegotiate the Brexit agreements. Failing such a renegotiation, Stellantis plans to close its factories in England. Today, Ford and other German brands have rallied behind Stellantis' request.

Additionally, the German Automobile Manufacturers Association (VDA) has joined Stellantis' demands in offering to extend the Brexit trade deal for three years. This extension aims to avoid the imposition of customs duties of 10% on electric cars crossing the Channel.

According to the Trade and Cooperation Agreement between the European Union and the United Kingdom following Brexit, cars sold in the United Kingdom must meet certain conditions to benefit from a 10% exemption from customs duties . Specifically, at least 40% of the materials used in the manufacture of the car must be locally sourced . This threshold will increase to 45% next year, then to 55% in 2027.

In theory, this measure should favor car models manufactured in the European Union and avoid an increase in costs and prices. However, in practice, the situation is more complex, especially with regard to electric cars. Unlike a gasoline-powered car, achieving the required percentage of locally sourced materials is more difficult for an electric car.

The traction battery accounts for up to half of the total cost of an electric car. Most of these batteries are currently imported from China, South Korea and Japan. Since Europe does not yet have a sufficiently developed battery industry to do without Asian batteries (which will not be the case before at least 2026), European brands could be subject to tariffs from 2024.

This could mean an automatic price increase of at least 10% for UK consumers, which could lead to lower sales for brands.

UK brands will also face tariffs

This agreement does not only affect brands producing in the territory of the European Union, but it also applies to vehicles manufactured in the United Kingdom. Therefore, while an Oxford-produced MINI or Bentley would not be subject to tariffs when sold in the EU, a Swindon-made Nissan Leaf could potentially be subject to tariffs.

In a press release, the American car manufacturer Ford announced its adherence to the petition launched by the Stellantis group . As part of this initiative, Ford plans to invest 380 million pounds (437 million euros) in a factory located in Liverpool, dedicated to the production of electric motors.

In this press release, Ford expresses its desire to extend the current commercial requirements until 2027. This extension would allow the battery supply chain to develop in Europe and meet the growing demand for electric vehicles.

European manufacturers have expressed their demand for the renegotiation of the trade and cooperation agreement, which is also in the interest of British manufacturers. Mike Hawes, chief executive of the British Association of Local Manufacturers (SMMT), points out that given the acceleration of the transition to zero-emission vehicles in all countries and the massive investments offered by global competitors to attract the industry , a pragmatic approach must be quickly found.

It is clear that without a free trade agreement between the UK and the EU, the future of electric car manufacturing in the UK is uncertain. An example illustrating this reality is the movement of BMW . Anticipating an increase in requirements for local origin and the absence of battery factories, the German group decided in 2022 to produce its future electric MINI and its derivatives, such as the MINI Aceman , in China, while production of the future electric MINI Countryman would be insured in Germany.