LONDON (Reuters Breakingviews) – A cold start occurs when frosty weather makes car oil too viscous to circulate properly. The UK government faces similar difficulties revving up its motor industry after Brexit. Though it swerved tariffs through a last-gasp trade deal with the European Union, looming export rules on electric vehicles could leave local automakers stuck in second gear.
The agreement struck on Christmas Eve elicited a sigh of relief for UK-based car manufacturers, which collectively account for 13% of Britain’s goods exports. Tariffs would have bunged up automotive supply chains and hobbled the industry, which exports just over half its output to the EU.
Yet British manufacturers are now subject to so-called rules of origin, which govern how much of a product’s value can originate outside the UK or EU and still qualify for tariff-free treatment. The trade deal pegs that proportion at 45% for combustion engine cars, ensuring plants operated by the likes of BMW and Jaguar Land Rover enjoy tariff-free access.
Battery-powered vehicles can initially have 60% of their value from other countries. However, the reprieve is only temporary, falling to 55% by 2024. That’s a problem because batteries alone, sourced mostly from Asia, currently make up to half of a zero-emission ride’s value. Combined with other foreign components, UK-made electric vehicles exported to the EU could face a 10% surcharge under World Trade Organization rules.
True, EVs accounted for a tiny proportion of the UK’s 1.3 million vehicles produced in 2019. But automakers’ future is increasingly electric: sales of petrol-powered cars contracted by about two-fifths in the first nine months of 2020, according to the European Automobile Manufacturers’ Association, while electric and hybrid vehicles doubled year-on-year.
Persuading companies like Nissan Motor to stay in Britain won’t be easy for Prime Minister Boris Johnson. One option is to make more batteries in the UK, though this would require a substantial increase in production. The UK’s Society of Motor Manufacturers and Traders reckons the UK’s current EV battery capacity is just 2 gigawatt hours a year – compared to a longer-term goal of 120 GWh needed to power two million EVs.
True, automakers could source batteries from the EU instead. And the latter’s value should drop as the industry scales up. Even so, UK-made cars face more unwelcome bumps in the road.
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