U.K.'s Sunak said to tap Germany's Scholz to help delay looming EU EV tariff

British Prime Minister Rishi Sunak is looking to enroll German Chancellor Olaf Scholz to help delay upcoming tariffs on electric vehicles shipped between Britain and the European Union, according to people familiar with the matter.

Sunak tapping the leader to the home of Volkswagen, BMW and Mercedes comes as the EU is not moving from its timetable with a phase-in starting next year.

The looming 10 percent tariff on EVs crossing the Channel could cost the industry 4.3 billion euros ($4.7 billion) and boost competition from China, industry association ACEA said last month.

Britain has raised the issue directly with Berlin, one of the people said.

Spokespeople for Downing Street and the German government declined to comment.

Under the U.K.’s post-Brexit arrangements, EVs traded between Britain and the EU from next year will attract a 10 percent tariff if less than 45 percent of their value comes from the region.

Britain and European automakers want to extend the planned phase-in period by three years, when the full set of so-called rules of origin provision comes into force, allowing more time for the region’s battery supply chain to develop.

The goal of the regulation in its current form is to support cell production in the EU, a European Commission spokesperson said, crucial in competing in the EV transition where Asian players dominate on battery making.

But internal discussions are ongoing, according to people familiar with the matter. It would make more sense to focus directly on the later 2027 date because getting the continent’s battery supply chain ready in time for next year was not realistic, one of the people said, and the bloc should work with the industry to meet that. A final decision has not been taken, the person said.

One challenge is that any shift would likely require changes to the EU-UK Trade and Cooperation Agreement, which Brussels has so far been keen to avoid.

While there is no movement at official EU levels for now, Germany earlier this year intervened at the 11th hour to protect its automakers, the country’s biggest industry, forcing the bloc to soften its planned ban on combustion-engine cars from 2035.

“We are afraid that if we get soft on this issue, in three years we will have the same discussion as we have right now,” Maros Sefcovic, the European Commission’s chief for inter-institutional relations said in an interview with Bloomberg Television.

Automakers currently source most EV batteries — which typically make up around 40 percent of the value of a car — from Asia, while companies like China’s Contemporary Amperex Technology Co. so far have no meaningful competition from elsewhere.

Automakers have been lobbying the Commission to scrap the transitional obligations until the end of 2026, arguing that the rules are almost impossible to meet and will benefit Chinese manufacturers, according to documents seen by Bloomberg show.

The U.K. accounts for almost a quarter of EU EV exports and that currently attract no tariff, accounting for a 47 percent market share in 2022, one of the documents says. It notes that U.K. imports from China have surged and accounted for about a third of sales last year, despite a 10 percent tariff.

Should European vehicles pay the same tariff, they will lose out, one of the documents says.

Brussels has been looking to boost production in the EU especially in the wake of massive subsidies in the U.S. that are pulling away investments from Europe.

Global spending on battery plants and related manufacturing facilities nearly doubled to $45.4 billion in 2022 — but Europe’s share dropped to 2 percent, a far cry from attracting 41 percent of new factory investment a year earlier, according to BloombergNEF calculations.