EU set to propose three-year delay to tariffs on UK EV trade

The European Commission is set to recommend delaying tariffs on electric vehicles traded with the UK by three years, according to people familiar with the matter.

Under current post-Brexit arrangements to be phased in from Jan. 1, EVs moving between the UK and the European Union would draw a 10% duty if less than 45% of their value comes from the region, with the policy meant to encourage development of Europe’s battery supply chain.

But carmakers, the UK and the vast majority of EU member states had been pushing to delay the measure until 2027 because local cell supply isn’t ready. France has long resisted a straightforward extension, preferring instead alternatives to mitigate the impact of the tariffs on the industry. Paris had signaled in recent weeks that it was open to finding a flexible solution.

The recommendation for a three-year delay would need to be approved by EU capitals first, and then followed by a joint decision with the British government. If EU commissioners sign off on the proposal to delay the duties, member states will discuss it in the coming days, another person said. 

The EU had also been exploring a 12-month cushion, Bloomberg previously reported. The option envisions local battery production in the EU picking up next year and assumes that carmakers can then steer content toward specific export destinations such as the UK, where the stricter requirements will be in force.

However, it would not guarantee that EVs entering production in 2024 and 2025 aren’t subject to tariffs and not all manufacturers would likely be able to adjust their supply chains in time to meet the content requirements.

A lobby representing carmakers including Volkswagen AG and Renault SA has warned the duties could cost the sector €4.3 billion ($4.7 billion) over the next three years and would benefit Chinese brands.

During months of debate over the issue, Brussels was looking for a solution to balance safeguarding the automotive industry while also incentivizing more EU battery production.

The UK’s auto trade lobby had warned the tariffs would add about £3,600 ($4,500) to the cost of the typical British-built electric vehicle sold in Europe, and about £3,400 to the average EU-made EV in the UK.

“Failure to postpone these rules would see EVs traded both ways incur tariffs that would raise prices for consumers at a critical moment in the transition,” the Society of Motor Manufacturers said in a statement earlier Tuesday. “Carmakers and governments on both sides of the Channel have called for a common-sense approach to retain the current EV battery rules for a further three years, which will support consumer choice and affordability.”