UK expects new Brexit deal on car factory rules ‘soon’

The UK and the European Union will “soon” announce a solution on post-Brexit trading rules that carmakers warn could lead to factory closures, Business and Trade Secretary Kemi Badenoch said.

“This is not a UK problem, it is an EU-UK problem. It works both ways,” Badenoch told Stephanie Flanders, Bloomberg News’s head of economics and government, Tuesday on the sidelines of the Qatar Economic Forum in Doha. “We should see an answer soon.”

Bloomberg has previously reported the UK is lobbying the EU to delay the introduction of local manufacturing requirements, so-called rules of origin, which are due to kick in next year. The UK has included removing that cliff edge among its priorities in recent talks with Brussels. 

The rules stipulate that 45% of an electric vehicle’s value must be sourced in the UK or elsewhere in Europe from 2024 to avoid export tariffs of 10% — a burden for British automakers selling cars abroad. Carmakers including Stellantis NV, which is retooling its Ellesmere Port site to make electric vans, have said the rising cost of raw materials and a lack of UK battery supplies make it difficult to comply with the rules while remaining profitable.

The Brexit trade deal is up for review in 2025 and both sides are “looking to see what we can do in advance of that,” Badenoch said. She suggested that aspects of the agreement need to change in light of global developments including Russia’s war in Ukraine.

“Quite a lot of the things we have put in place just don’t work given all the things that are happening,” she said. “We have to be as nimble as possible.”

Post-Brexit rules are part of a growing list of challenges facing the auto industry in the UK, where vehicle output shrank almost 10% last year. The country has been struggling to attract significant investment, while several manufacturers have shifted output to other places.

British carmakers are hurting from a “lack of action” by the government, but can rebuild competitiveness by relying less on trade with Europe and look instead to countries including the US and China, Andy Palmer, former chief executive of Aston Martin, told a UK Parliament committee on Tuesday. Brexit gives the British car industry the “opportunity to catch up,” he said.

At the Qatar Economic Forum, Badenoch confirmed the government is working on a so-called advanced manufacturing plan — which was also previously reported by Bloomberg — aimed at keeping carmakers in the UK. 

The strategy “should be a way of helping to corral a little bit more — in terms of not just support but more streamlined policies — about what we’re going to do in order to make sure this industry survives,” she said.

She also said she is hopeful Tata Group, the parent company of Jaguar Land Rover, will choose the UK over Spain for its battery plant. “We’re doing everything we can to show that the UK is the best place to invest,” she said.

BMW last year said it will move production of electric Mini hatchbacks from Oxford, England, to China. Honda Motor Co. closed its car factory in Swindon in 2021, leaving Britain with just four major manufacturers: Jaguar Land Rover, Nissan Motor Co., BMW and Toyota Motor Corp.

The government of the State of Qatar is the underwriter of the Qatar Economic Forum, Powered by Bloomberg.