Automakers win delay on EU tariffs for U.K.-built EVs

The European Union proposed delaying by three years  tariffs on electric vehicles traded with the U.K. that are set start on Jan. 1, in a win for automakers that warned the rules would unnecessarily hurt their operations.

"This is a one-off extension that will not be possible in the future," Maros Sefcovic, the EU chief for post-Brexit relations with the U.K., told reporters on Wednesday.

He said the proposed change to the EU-U.K Trade and Cooperation Agreement applies only to the one narrowly defined sector and is not part of a broader renegotiation of the deal.

"This new instrument will provide support, possibly as a fixed premium to the European manufacturers of the most sustainable batteries creating important spill-over effects on the entire value chain," Sefcovic said.

Britain and the EU are each other's largest market for exports of EVs, which are being encouraged as an alternative to carbon-emitting internal combustion engine vehicles powered by gasoline or diesel

Under current post-Brexit arrangements to be phased in from Jan. 1, EVs moving between the U.K. and the European Union would draw a 10 percent duty if less than 45 percent of their value comes from the region, with the policy meant to encourage development of Europe's battery supply chain.

'Helping Chinese brands'

But carmakers, the UK and the vast majority of EU member states had been pushing to delay the measure until 2027 because local cell supply is not ready.

Batteries represent 30 to 40 percent of a car's value and most are sourced from China, so Europe's carmakers argued they would have struggled to meet the content requirements. They said tariffs would principally have helped outside competitors, such as Chinese automakers whose exports to Europe are surging.

ACEA, the European automakers' lobby group, warned the duties could cost the sector 4.3 billion euros ($4.7 billion) over the next three years. U.K. industry association SMMT said the tariffs would add about 3,600 pounds ($4,500) to the cost of the typical British-built electric vehicle sold in Europe, and about £3,400 to the average EU-made EV in the U.K.

The recommendation for a three-year delay needs to be approved by EU capitals first, and then followed by a joint decision with the British government.

"This balanced proposal provides much-needed predictability and stability to EU car and battery makers at a time of fierce global competitive pressure," Valdis Dombrovskis, the EU's trade chief, said in a statement on Wednesday.

"It is the result of intense engagement with industry across the entire EV supply chain and with trade unions, which had expressed concern about rules that would have seen tariff barriers hit our EV exports to the U.K., our largest export market," Dombrovski said.

France has long resisted a straightforward extension, preferring instead alternatives to mitigate the impact of the tariffs on the industry. Paris had signaled in recent weeks that it was open to finding a flexible solution.

'Strong strategic move'

Swedish EV battery maker Northvolt praised the proposed EU extension as a strong strategic move.

"If used correctly, this mechanism could further fuel the race towards creating more sustainable and circular batteries, giving Europe a competitive edge while also moving towards realizing the goals of the Paris agreement," Anders Thor, the company’s vice president for communications, said in an emailed statement.

The European Commission also said it was setting aside an extra 3 billion euros ($3.24 billion) to boost the bloc's battery manufacturing industry, a move designed to increase local content and reduce its reliance on China.

Reuters contributed to this report

The post-Brexit Trade and Cooperation Agreement (TCA) says that, to qualify for zero tariffs, at least 55% of the value of EVs needs to be from the EU or U.K., with values of 65% for battery cells and modules and 70% for battery packs.

However, it contains two transition periods, the first with EVs requiring 40% local content and battery packs and components 30%, the second for 2024-2026 at 45% for EVs, 50% for battery cells and modules and 60% for battery packs.

Import tariffs of 10% apply for EVs falling short of those requirements.

The Commission's proposal is to extend the first transition period for three years to 2027, when the full local content requirements of the TCA will apply.

There will be no second transition period.

-- Reuters