Most electric and hybrid cars sold in the UK will become more expensive after the end of the Brexit transition period even with a trade deal, potentially complicating the UK’s aim to end the sale of new petrol and diesel vehicles by 2030, according to one of the country’s top automotive executives.
Alison Jones, UK head of Vauxhall’s French owner PSA, said any tariffs imposed on cars as a result of a UK-EU trade agreement “would be passed on to consumers”.
A key factor would be whether there was a last-minute breakthrough on British demands that Brussels agree to define a large amount of components made in third countries as so-called “local content”. If there was no such agreement then tariffs would be levied on the majority of electric or hybrid vehicles bought in the UK, as most are imported from the EU.
These so-called rules of origin included in most trade deals dictate that a certain percentage of a product’s value — normally about 50 per cent — must be made locally to qualify for preferential market access.
This is crucial for electric and hybrid vehicles as the batteries make up a large proportion of their value and are mostly made in Asia.
“Regardless of whether there is a free trade deal agreement or not there will still be rules of origin for batteries and plug-in hybrid vehicles,” Ms Jones told the FT’s Future of the Car summit on Wednesday.
She said tariffs would inevitably lead to higher prices for new cars on the forecourts, just when the UK government is seeking to encourage buyers to switch to green vehicles after last month bringing forward the ban on the sale of petrol and diesel vehicles to 2030.
“When you combine that with the government’s statement last month about the end of sale of petrol and diesel by 2030, those things don’t fit — we've been calling on ministers to join up this thinking,” Ms Jones added.
The car industry in the UK and the rest of Europe was increasingly frustrated by the “lateness of the final decision” on a post-Brexit trade deal, Ms Jones added.
She said further investment in Vauxhall’s factory at Ellesmere Port, near Liverpool, would be delayed until there was clarity on the future relationship between the UK and the EU. “We need to know what the terms of the deal are to enable us to make investment decisions. You can’t when you’ve got unpredictability.”
The UK is part of the EU single market until the end of this month but without a trade agreement will have to resort to basic World Trade Organisation terms with tariffs being imposed on goods and services. The car industry has warned a no deal would be hugely damaging.
Bentley chief executive Adrian Hallmark told the FT summit that the company was ready whether a deal was agreed or not “but that’s to say we’re ready to jump off a cliff with a parachute we think works but haven’t yet tested”.
He said contingency plans had been put in place in case of disruption to the supply chain from a no-deal with five dedicated cargo aircraft on standby to “fly bodies, engines, everything we need” into Manchester.
Bentley sources 90 per cent of the parts for its hand-built cars from overseas, and the business had spent millions of pounds testing new routes of getting components into the UK, he said.
The company had taken on additional warehouse capacity and was now running with 14 days of just-in-time stock, rather than two “because of the Covid risk of suppliers having to close down and the compound risk of Brexit”.
He warned there would be 10 per cent tariffs on cars going into the EU, which make up 24 per cent of Bentley’s total sales, in the event of a no deal.
He said the company had found “the ‘least worst’ balance of price increases and cost absorption and further restructuring” to handle any tariffs that might be imposed.
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