Why is Brexit causing problems for electric cars in Britain?

Car industry bosses are warning of serious consequences without a new Brexit deal on electric car tariffs.

The Independent revealed on Sunday that £6,000 could be added to the price of a new vehicle when new EU trade rules come into force next year.

Industry bosses say there is an “existential threat” to the UK’s car manufacturing plants.

What lies behind the problems?

It all comes back to the Brexit trade deal negotiated by Boris Johnson back in 2020 – officially called the Trade and Cooperation Agreement.

Under the agreement, trade between the EU and the UK is meant to be tariff-free and quota-free. This means neither the UK nor the EU can levy import charges on each other’s goods.

But there is a catch: this only applies to goods actually produced in the UK and the EU.

This is normal in free trade agreements and is meant to stop, for example, Chinese goods from arriving in Britain and then entering the EU quota-free, posing as British goods.

But, what are British goods?

With globalised supply chains and complicated manufacturing techniques, an electric car can have parts made all over the world. So what car is truly British?

There are many possible philosophical answers to this question. But the answer the Brexit deal gives is a simple one: if 45 per cent of an electric car’s value originates in the UK, it is a UK car. Less than that and it is not, and has to pay full tariffs. These rules are called “rule of origin” and are another common feature of free trade agreements.

Unfortunately, this is causing problems for British carmakers. Electric cars are a new product with long and complex supply chains.

Batteries, in particular, are in high demand – and mostly come from China, which produces around 80 per cent of the world’s supply of lithium-ion cells.

As a result, UK electric car manufacturers are finding it hard to build a car that is even 45 per cent British by value. They want these new “rules of origin” to be delayed until 2027 when they hope more UK battery manufacturing capacity will be available.

It’s worth saying that this is a new problem caused by being outside the EU’s single market and customs union. Previously, these issues simply did not exist for sales between the UK and EU.