Brexit Deal Protects U.K. Electric Car Trade – For Now

EU and U.K. negotiators finally reached a deal on their post-Brexit relationship on Christmas Eve. Though both sides thought they had the talks wrapped up the day before, some last-minute technicalities kept them going for another day. One of those technicalities was the thorny issue of electric car batteries.

For many weeks, EU automakers had been pushing for Michel Barnier, the EU’s chief Brexit negotiator, to soften his negotiating stance on rules governing trade in electric cars across. They were worried that the EU’s insistence that the car be produced locally in either the U.K. or EU in order to avoid tariffs would stifle trade in electric vehicles, because batteries make up for such a large amount of such cars. Those battery cells are mostly made outside Europe, usually in China, South Korea and Japan.

British negotiators had proposed flexibility allowing that up to 70% of the parts in electric cars could come from outside Europe and still qualify or zero tariffs. In the final days of negotiations, the EU offered 45%. But it was feared that wouldn’t be enough to accommodate the significant portion of electric cars that are, for now, made outside Europe. Automakers warned this could work against green transport goals in the EU and U.K., which both want to increase the electrification of their vehicle fleets. The tariffs on cars would have amounted to about 10% of their value.

“Considering that a battery can represent between 30-50% of the value of the battery electric vehicle, the threshold would need to be well above the 45% cited by the Commission,” Eric Mark Huitema, head of the European automotive industry lobbying organization ACEA, wrote to Barnier in October.

In the end, the EU agreed to allow an exemption for electric cars, but only for six years.

This means that European carmakers have until 2026 to switch their battery supply chain from East Asia to Europe. Otherwise, the 10% tariffs will begin to apply on electric car sales from U.K. to EU or vice versa, if the electric cars are made up of more than 55% components of non-European origin.

Despite the grace period, several automakers have already decided to move production out of the U.K. rather than face the Brexit disruption risk. Nissan this year reportedly took the decision to ship its upcoming Ariya electric vehicle model to Europe from Japan rather than produce it in the U.K., where one of its factories faces closure because of Brexit.

In November new-car registrations in the U.K. plunged 27% and are down almost a third this year.