Rishi Sunak is looking to enroll Germany’s Olaf Scholz to help delay upcoming tariffs on electric vehicles shipped between the UK and the European Union, according to people familiar with the matter.
(Bloomberg) — Rishi Sunak is looking to enroll Germany’s Olaf Scholz to help delay upcoming tariffs on electric vehicles shipped between the UK and the European Union, according to people familiar with the matter.
The UK prime minister tapping the leader to the home of Volkswagen, BMW and Mercedes comes as the EU isn’t budging from its timetable to phase in a 10% tariff starting next year. The provision for EVs crossing the Channel could cost the industry €4.3 billion ($4.7 billion) and boost competition from China, the European Automobile Manufacturers’ Association said last month.
The UK has raised the issue directly with Berlin, banking on political engagement to move things along after official-level talks haven’t progressed, people familiar with the matter said. The British side is also hoping for European carmakers to lobby the commission and member states, including Germany, on the issue, the people said.
Spokespeople for Downing Street and the German government declined to comment.
Read more: German Carmakers Warn of Tough EU Talks on Post-Brexit EV Trade
Under the UK’s post-Brexit arrangements, EVs traded between Britain and the EU from next year will attract a 10% tariff if less than 45% of their value comes from the region. Britain and European carmakers want to extend the planned phase-in period by three years, when the full set of so-called rules of origin provision comes into force, allowing more time for the region’s battery supply chain to develop.
The goal of the regulation in its current form is to support cell production in the EU, a European Commission spokesperson said, crucial in competing in the EV transition where Asian players dominate on battery making.
But internal discussions are ongoing, according to people familiar with the matter. It would make more sense to focus directly on the later 2027 date because getting the continent’s battery supply chain ready in time for next year wasn’t realistic, one of the people said, and the bloc should work with the industry to meet that. A final decision has not been taken, the person said.
Read more: Europe’s EV Push Nearly Faltered Over Fuels That Are Years Away
One challenge is that any shift would likely require changes to the EU-UK Trade and Cooperation Agreement, which Brussels has so far been keen to avoid. While there’s no movement at official EU levels for now, Germany earlier this year intervened at the 11th hour to protect its carmakers, the country’s biggest industry, forcing the bloc to soften its planned ban on combustion-engine cars from 2035.
“We are afraid that if we get soft on this issue, in three years we will have the same discussion as we have right now,” Maros Sefcovic, the European Commission’s chief for inter-institutional relations said in an interview with Bloomberg Television.
While London has long hoped that European firms would come to its aid in Brexit negotiations with Brussels, such support has yet to prove decisive. The UK has consistently struck a more optimistic tone than the European side on the chances for resolving the EV issue. In May, EU officials said there was no reason to expect an imminent solution to the tariff issue after UK Business and Trade Secretary Kemi Badenoch told Bloomberg that a solution would emerge “soon.”
Manufacturers currently source most EV batteries — which typically make up around 40% of the value of a car — from Asia, while companies like China’s Contemporary Amperex Technology Co. so far have no meaningful competition from elsewhere.
Automakers have been lobbying the European Commission to scrap the transitional obligations until the end of 2026, arguing that the rules are almost impossible to meet and will benefit Chinese manufacturers, according to documents seen by Bloomberg show.
The UK accounts for almost a quarter of EU EV exports and that currently attract no tariff, accounting for 47% market share in 2022, one of the documents says. It notes that UK imports from China have surged and accounted for about a third of sales last year, despite a 10% tariff. Should European vehicles pay the same tariff, they will lose out, one of the documents says.
Brussels has been looking to boost production in the EU especially in the wake of massive subsidies in the US that are pulling away investments from Europe. Global spending on battery plants and related manufacturing facilities nearly doubled to $45.4 billion in 2022 — but Europe’s share dropped to 2%, a far cry from attracting 41% of new factory investment a year earlier, according to BloombergNEF calculations.
–With assistance from Arne Delfs and Maria Tadeo.
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