UK and EU Plan EV Tariffs; Automakers Urge Delay to Ease Industry Strain

Under the EU-UK Trade and Cooperation Agreement, starting January 2027, electric vehicles (EVs) traded between the two regions will qualify for tariff-free treatment only if they meet stringent rules of origin: at least 50% of the vehicle’s total value, 70% of the battery pack, and 65% of individual battery cells must be produced locally in Europe. The European Union has already suspended enforcement of these rules until the end of 2026. Current industry estimates indicate that by 2027, the share of batteries manufactured in Europe is expected to be less than 20%, far below the previously anticipated 60%. The UK fares slightly better but still falls short of meeting the requirements. The European Automobile Manufacturers’ Association (ACEA) identified high production costs as the primary obstacle, noting that local battery manufacturing costs are approximately 30% higher than those in China. Establishing a complete battery supply chain faces multiple challenges, including the long lead times and substantial capital investment required—from lithium mining to the production of battery-grade raw materials—with the cost of building a single integrated supply chain reaching as high as $750 million. Compounded by factors such as semiconductor shortages triggered by the COVID-19 pandemic and the Russia-Ukraine conflict, Europe’s domestic battery capacity expansion continues to lag significantly. Automakers in both the UK and the EU widely agree that the current rules of origin are disconnected from industrial realities. If tariffs are imposed as scheduled, EV prices would rise, dampening consumer demand and hindering the growth of the local EV industry. Industry associations from both regions have jointly urged the EU to adopt pragmatic measures—extending the tariff suspension while granting the domestic battery sector more time to develop.