The automotive industry is in a bind as it grapples with the complexities of the Brexit trade deal and the challenges of meeting the stringent rules of origin for electric vehicles (EVs). The pressure is on, with the industry urging the European Commission to reconsider the suspension of tariffs on EVs, which is now in its second year. The stakes are high, as the failure to meet these conditions could result in significant economic consequences for both the UK and the EU.
The core issue revolves around the strict rules of origin, which dictate that 55% of a car's value must be made in Europe by 2027 to avoid tariffs. This includes a 70% requirement for the battery pack and a 65% requirement for the battery cell. However, the industry's progress in meeting these targets has been hindered by various factors.
One significant challenge is the high cost of battery manufacturing, which is 30% higher than in China. This, coupled with the stranglehold China has on critical raw materials like lithium and refined lithium for battery cells, makes it difficult for European manufacturers to compete. The cost and time-consuming process of setting up local battery production, including mining and building a full production chain, further exacerbate the issue.
The industry's pleas for a suspension of tariffs are not without merit. The slow development of battery drive train technology in Europe and the lack of preparedness to meet the rules of origin are major concerns. The industry estimates that by 2027, only 20% of batteries will be made in the EU, and even the UK's level is below targets. This highlights the urgency of the situation and the need for a pragmatic solution.
The industry's struggles are not just limited to the EU. The UK is also facing challenges in ramping up battery production, with supply chains not ready to meet the stringent requirements. The assumptions on which these requirements were based have not materialized despite significant investment, leading to a need for a reevaluation of the approach.
The broader implications of these struggles are far-reaching. Over-production in China and the favorable exchange rate are causing rolling crises for manufacturing, potentially leading to the cannibalization of European industry. This highlights the interconnectedness of the global automotive market and the need for a coordinated response to address these challenges.
In conclusion, the automotive industry's plea for a further delay in Brexit EV tariffs is a call for a pragmatic solution that balances the need for domestic battery capabilities with the economic realities of the market. The industry's struggles underscore the complexities of the Brexit trade deal and the need for a comprehensive approach to address the challenges facing the European and UK automotive sectors.
