Out-Law News

EU electric battery rules of origin delay will be welcomed by UK car industry

The European Commission has delayed its 2024 ‘rules of origin’ requirements for electric vehicle batteries, extending the tariff-free period for UK manufacturers.

The rules, originally set to come into force on 1 January 2024, require at least 45% of electric vehicle parts to have originated from either the UK or EU – an increase of 5% from the current threshold of 40%. Agreed as part of the Brexit deal, failure to meet the 45% threshold would see manufacturers face a 10% tariff.

Currently, a large proportion of electric vehicle components are sourced from Asia, prompting warnings from senior figures within the automotive industry of the challenges the increased threshold would pose. The Society of Motor Manufacturers and Traders previously warned that the strict rules could result in a price hike of £3,400 for electric battery vehicles made in the UK, adding billions to costs. Experts also warned the risk of consumer price hikes run contrary to the need to encourage the uptake of electric vehicles to achieve climate change targets.

However, the recent decision means that the interim rules, that were due to apply until the end of 2026 before a higher threshold is introduced, will be delayed in what is being hailed a boost for UK manufacturers.

Specialist in the future of mobility, Ben Gardner of Pinsent Masons, said the announcement offered support to the UK manufacturing industry amid concerns of increasing costs, bureaucracy and lead times and the impact of Brexit. He said the delay would help to alleviate concerns for UK manufacturers seeking to innovate and remain competitive in a global market.

Gardner added: “Hopefully this announcement is the first of many developments that will support the prosperity of UK manufacturing and give it a bright future.”

The Commission provided a range of reasons for the decision, including several unforeseen circumstances such as Russia’s aggression in Ukraine and soaring energy bills.

However, Maroš Šefčovič, commissioner for interinstitutional relations, described the delay as a “one off,” stating that a further delay will not be legally possible until 2032. It means the strictest level of rules of origin for electric vehicles and batteries will apply immediately from 2027, following plans set out in the Trade and Cooperation Agreement, agreed in 2020. At this point, the threshold will increase to 55%, putting further pressure of the automotive industry to avoid the 10% tariff.

Raam Hargun of Pinsent Masons added that despite the extension being welcomed, there is still “significant risk” to the automotive industry in the future.

Hargun said: “The fact that this extension is a one-off extension means that the UK will need to ensure it has plans in place for the post-31 December 2026 period, which appears to be a strict deadline that will not change again.

“Whilst it may seem like the pressure is off, the UK will need to keep its foot on the pedal to ensure that plans are in place well in advance of 31 December 2026 to secure the future of the UK’s green automotive industry.”

In addition, the European Commission announced financial support to European producers of sustainable batteries, with funding issued from the beginning of 2024. Funding will be issued through the Innovation Fund from the beginning of 2024 over three years, amounting to €3 billion, with the Commission stating this will help to incentivise investment in the EU’s battery manufacturing capacity, calling this “essential” for the green transition.

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