Carmakers have urged the European Commission for urgent action on new taxes that will be imposed on electric vehicles traded between the EU and the UK from January 2024.

Carmakers says more time is needed to build up the kind of scale needed to meet the rules of origin

If the Commission fails to take action, a 10% tariff will be placed on electric vehicle exports between the UK and the EU – likely to be passed to some extent onto car buyers.

The so-called ‘Rules of Origin’ were agreed under Brexit and ‘hard-wired’ in the EU-UK trade agreement, placing minimum restrictions on all battery parts and some battery raw materials to ensure they’re locally sourced within the EU or UK.

The rules were meant to avert the threat of cheap imports – but manufacturers in both the UK and the EU have said they’re not ready.

The European Automobile Manufacturers’ Association (ACEA) has warned that the restrictive requirements are “practically impossible to achieve today” – and called for a three-year delay.

It says the requirements could cost EU vehicle makers €4.3bn (£3.7bn) over the next three years, potentially reducing electric vehicle production by some 480,000 units, the equivalent output of two average-size auto factories.

“Driving up consumer prices of European electric vehicles, at the very time when we need to fight for market share in the face of fierce international competition, is not the right move – neither from a business nor an environmental perspective,” stated Luca de Meo, ACEA president and CEO of Renault Group. “We will effectively be handing a chunk of the market to global manufacturers.”

Carmakers says massive investments are being made in European battery supply chains, but more time is needed to build up the kind of scale needed to meet the rules of origin.

“Europe should be supporting its industry in the net-zero transition as other regions do – not hindering it,” added de Meo. “There is a very simple and straightforward solution: extend the current phase-in period for battery rules by three years. We urge the Commission to do the right thing.”

The UK’s Society of Motor Manufacturers and Traders (SMMT) has also called for action.

Mike Hawes, chief executive of the trade body, said: “Imposing tariffs on electric vehicles traded between the UK and EU would damage the entire automotive ecosystem on both sides of the Channel. Yet, this could easily be avoided by simply delaying the introduction of over-demanding rules of origin requirements.

“We urge the EU and UK to agree a pragmatic solution and quickly because raising the cost of EVs will not only constrain the transition, but will limit consumer choice and, ultimately, compromise the competitiveness of an industry on which so many livelihoods depend.”

The rules of origin form part of the EU-UK Trade Cooperation Agreement (TCA), which was signed in December 2020 and became active in May 2021.

The rules apply to a number of different products, including vehicles, but EVs were given longer to comply due to reliance on Asian imports of batteries.

Under the current threshold, 30% of batteries and 40% of the content of electric vehicles must originate from the EU or the UK.

But from 1 January 2024, this increases to 50-60% for batteries and 45% of the vehicle. If this is exceeded, carmakers will have to pay a tariff of 10%. The percentages will also increase further from 2027, rising to 65% for batteries and 55% for vehicles.