The EU and UK have today ratified a deal to extend trade rules on electric vehicles until the end of 2026, narrowly avoiding the risk of tariffs that would have pushed up EV prices.

The agreement to extend trade rules until the end of 2026 is a lifeline for the UK and European motor industry

Confirmed just 11 days before stricter rules would have come into play for 2024, the deal will maintain the current battery and electric vehicle Rules of Origin under the Trade and Cooperation Agreement (TCA).

This will provide long-term certainty for the automotive industries both sides of the channel and will boost electric vehicle sales between the markets.

Vitally, it will also avert the risk of higher EV prices for private drivers and fleets. The Society of Motor Manufacturers and Traders (SMMT) – which along with the European Automobile Manufacturers Association (ACEA) has been calling for urgent action for months – had warned that EVs would face a £3,400 average price hike from 2024 unless an urgent deal on trade tariffs was signed.

Under the post-Brexit Trade and Cooperation Agreement (TCA), businesses must prove their products include a minimum level of EU- or UK-manufactured content to access zero tariffs. A staged approach was introduced for electric vehicles and batteries, increasing the requirements from 1 January 2024, before a final increase from 1 January 2027.

While the requirements were meant to incentivise investment in domestic battery production, carmakers have been warning that the restrictive requirements are practically impossible and vehicles being traded between the EU and UK would have had a 10% tariff applied if they did not meet the manufacturing threshold. This would have happened at a time when price is key to convincing more drivers to switch to EVs – and when carmakers face strict targets under the ZEV mandate.

The deal follows the Government pledge in the Autumn Statement to invest £2bn+ to support the manufacturing, supply chain and development of zero-emission vehicles, and the recently announced battery strategy that seeks to secure the UK’s place as a major battery manufacturing nation.

Prime Minister Rishi Sunak said: “We have been listening to concerns of the sector throughout this process, and I know this breakthrough will come as a huge relief to the industry.

“The UK government is delivering a pragmatic solution to keep costs down for businesses and for people at home who want to make the switch to electric vehicles. We are also leaving no stone unturned to bolster our domestic battery industry and deliver long-term certainty for our thriving automotive sector to help them grow their roots in the UK.”

The UK has also said it will look to extend the equivalent Rules Of Origin in the UK-Turkey preferential trade agreement ready for the end of the year, in a further boost for UK car companies that are major exporters to the Turkish market, such as Ford. This will ensure the existing Rules of Origin will last for a further three years until the end of 2026, and comes as the UK looks to start negotiations for a new free trade agreement with Turkey next year.

The agreement has been universally greeted by the automotive sector.

Mike Hawes, SMMT chief executive, said: “Deferring the Rules of Origin is a win for motorists, the economy and the environment. Maintaining tariff-free trade in EVs will ensure consumers retain the widest and most affordable choice of models, at a time when we need all drivers to make the switch.

“Governments have listened to the sector and acted to safeguard the competitiveness of the EU and UK automotive industries and give the Anglo-European battery industry the critical time it needs to catch up. The measure will help cut carbon, support growth and jobs, and is the right decision for the decarbonisation of road transport.”

Lisa Brankin, chair, Ford Britain, added: “On behalf of Ford in the UK, I want to thank policymakers in London and Brussels for listening to and engaging with a united automotive industry. Today’s decision to avoid unnecessary tariff costs is a major moment that will protect jobs, support countless investments, and most-importantly help to keep costs down for consumers and businesses on their journey to an all-electric future.

“The Government’s focus on updating the UK–Turkey battery trade rules to reflect today’s agreement with the EU is also very welcome. Our dedicated Ford Pro organisation is committed to helping businesses go electric and this swift action will help us to continue do that.”

Maria-Grazia Davino, group managing director, Stellantis UK, commented: “We can now focus on our planned acceleration towards electrification, keeping costs down for our customers. The agreement demonstrates the importance of the trading relationship between the EU and UK and keeping the UK competitive.”

And a spokesperson for BMW Group said: “This planning certainty will allow the BMW Group to enhance its manufacturing and sales footprint in this highly competitive market.”

Jon Lawes, managing director at Novuna Vehicle Solutions and MHC Mobility, said the deal was a lifeline for the UK and European motor industry.

“The Rules of Origin tariffs have cast a long shadow over the switch to EVs in the UK and Europe. With UK EV registrations declining in November, the rules threatened to further hit vehicle production costs and dampen EV adoption.”

But he added: “With the new year’s cliff edge averted, the industry and policymakers on both sides of the Channel need to focus on scaling up domestic battery capacity and tackling the persistent charging infrastructure deficit to create a sustainable, competitive market for EVs.”

Major UK announcements in gigafactories and electric vehicle manufacturing this year include the £2bn Nissan-led investment to produce two new electric vehicles in Sunderland, Tata’s investment of over £4bn in a new 40GWh gigafactory, BMW’s investment of £600m to build next-generation Mini EVs in Oxford, Ford’s investment of £380m in Halewood to make Electric Drive Units and Stellantis’ £100m investment in Ellesmere Port for EV van production.