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Brexit deal gives the UK three years to avoid significant EV price hikes

The last-minute Brexit free trade deal may have brought some semblance of final order to what has been a torrid four years, but the UK's EV market isn't out of the woods yet. Looming on the horizon is a need to become battery independent, as a favourable initial tariff deal comes to an end in 2024 will significantly increase costs.

Before Christmas, the very real threat of a no-deal Brexit meant that the cost of a new EV could have risen by around 10 per cent almost overnight. Whilst we have avoided that worst-case scenario thanks to the free trade deal signed on Christmas Eve, the troublesome issue of EVs actually saw EU and UK officials meeting after the deal had been signed to iron out the final creases.

Prior to the agreement, the difficult subject of tariffs on EV parts coming from outside the UK or EU – the so-called 'Rules of Origin' – was a constant issue. The UK's team wanted manufacturers to be able to source up to 70 per cent of EV parts from outside the UK or EU, and still be tariff-free. The EU wanted that figure to be 45 per cent.

What ultimately happened was that across Europe, car makers lobbied the negotiators on the basis that imposing the 45 per cent rule would clobber manufacturers across the region, most of which source major parts from the Far East – especially when it comes to batteries. This would, in turn, hurt nations' abilities to hit decarbonisation targets.

As such, the 70 per cent figure has been adopted… For now.

The UK's need for battery independence

Until January 1, 2024, EV makers in the UK such as Jaguar, Mini, Nissan, etc. can continue to build cars with up to 70 per cent of components coming from outside the UK or wider EU. However, after that date the figure drops to 50 per cent, and given that batteries are by far and away an EV's biggest single component (and most costly), to avoid tariffs from importing them from overseas, they will need to be built here.

To cut a long story short, this gives the UK three years to get its act together and establish gigafactories on these shores. If this doesn't happen, the simple fact is that EVs will go up in price. This would likely lead to a drop in demand, and the 2030 ban on new petrol and diesel sales – not to mention the 2050 net zero target – will be jeopardised.

The Society of Motor Manufacturers has, naturally, leapt on the issue. Chief Executive, Mike Hawes, said: “The phase-in period and special provisions for electrified vehicles and batteries now make it imperative that the UK secures at pace investment in battery gigafactories and electrified supply chains to create the world-leading battery production infrastructure to maintain our international competitiveness.”

He stressed that the government needs to take a lead on the issue not only of batteries, but also the green economy that will supplement future success for EVs: “Government must double down on its commitment to a green industrial revolution, create an investment climate that delivers battery gigafactory capacity in the UK, support supply chain transition and maintain free-flowing trade – all essential to the UK automotive sector’s future success.”

Race to 2024

According to a study by the Faraday Institute, the UK needs to have 130GWh of domestic battery production by 2040 to secure the long-term future of the car industry here, not to mention the 114,000 jobs that go with it. Worryingly, at present there are very few battery production projects that are likely to come to fruition before the end of the three-year crunch period.

One of the few gigafactory projects that may be ready by 2024 is being run by Britishvolt. Thanks to £2.6bn of investment and the securing of a location in Blythe, Northumberland, the site will break ground this year with batteries being produced before the end of 2023. However, with a final capacity of 30GWh, the UK would still need to find an additional 100GWh of production and aside from a few smaller-scale projects, attaining this figure seems a long way off.

With all this in mind, the race is truly on to fast track the UK's battery industry.

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