With the UK government seemingly railroading EU deal talks into the sidings, the news for the country's car business isn't exactly rosy. Despite calls back in September by European automotive industry leaders to secure a UK-EU free trade agreement without delay, exiting on World Trade Organisation (WTO) terms seems more likely than ever.
This is not good for either party, but it clearly impacts Britain far harder. No deal would force both sides to revert to WTO terms of non-preferential rules, including a 10 per cent tariff on cars and as much as 22 per cent on vans and trucks. And given the already nightmarish business prospects of a no deal Brexit, compounded by coronavirus, businesses will pass on those costs to the consumer.
On an individual level, cars from the EU will cost on average £2800 more than they do now if imported under WTO terms. So the government's PiCG effectively becomes worthless. And when you consider that a UK-built EV could cost around £2000 more over in EU countries, it's a certainty that demand will drop and car makers here will be hit proportionally harder. After all, why would someone in the EU buy a UK-built car for more when they have such a wealth of choice from European manufacturers?
To give some context, according to SMMT figures, two thirds of EVs on the UK's roads are built in the EU. That's two out of three of the 78,000 that it is predicted will be registered in the country this year. And the SMMT reckons that the Brexit price hikes could knock EV sales volumes by as much as 20 per cent next year – slowing the UK's decarbonisation and setting the country's progress back.
According to the SMMT, citing figures from ACEA, some three million cars could be collectively wiped from combined EU and UK production generating losses of 52.8 billion euros for UK plants and 57.7 billion for manufacturers across the EU.
Eric-Mark Huitema, ACEA Director General, said: "The stakes are high for the EU auto industry – we absolutely must have an ambitious EU-UK trade agreement in place by January. Otherwise our sector – already reeling from the COVID crisis – will be hit hard by a double whammy."
Unfortunately, despite the continent-wide protestations, there has been no appetite within the EU to make exceptions for the car industry while other industries will inevitably still be thrown under the bus by Brexit.
According to a draft addition to a post-Brexit trade deal, special allowances on EVs would only qualify for zero-rated tariffs if the majority of their constituent parts are from within the UK or EU. With many EVs manufactured here in the UK, for example, parts are imported from the far east, so the 10 per cent tariff would still apply, regardless of a deal situation.
This follows a somewhat curious plea by UK manufacturers that components from Turkey or Japan should be considered 'British'. But it stands to reason, as the EU wants to avoid a situation where EU-based manufacturers are undercut by Asian and US manufacturers using a newly 'Brexited' UK as an offshore assembly hub.
Obviously, the ideal situation would be that the UK – and European – manufacturers speed up their plans to make components in their domestic markets. This would mean more factories, especially gigafactories for batteries, most of which are currently imported and therefore a greater degree of manufacturing independence. However, this dream is some way off, and will get pushed back further if the predicted hit on exports is born out in reality.
Surprise surprise; that 'oven ready' deal is a lie. There's also little in the way of commitment from the UK government to continue with constructive talks with the EU, preferring to sling mud at a body which is – understandably – protecting its interests. WTO terms put the UK onto the same playing field as countries that aren't located 21 miles from allies and friends and our biggest trading partners, which is an unthinkable state of affairs. We can't currently see another way forward other than EVs going up in price from early next year – and on a wider scale, the UK automotive industry being skewered by utter, and avoidable, governmental ineptitude.
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