Automotive giants such as Renault, BMW, and Mercedes-Benz, have joined forces to request the postponement of the 10% tariff on electric car exports from Europe, slated to come into effect in January. The call to action is led by Luca de Meo, the Chief Executive of Renault, making a compelling plea to European Union (EU) to rule in its own favour. The automakers underscore the risk of EU ceding a significant portion of the EV market to global competitors like China.
This unified appeal from European and UK automakers has been strategically timed to coincide with the upcoming meeting of the joint EU-UK Brexit specialized committees on trade. The industry leaders from both the UK and Europe are fervently advocating for a delay in the tariff’s introduction by at least three years.
Thierry Breton, European Commissioner, in a recent interview with The Guardian, emphasized the EU’s commitment to maintaining the integrity of the Brexit deal. He stressed the need for a level playing field across the entire automotive industry “ecosystem.”
How will this affect the European Union and its market?
The imposition of tariff could lead to a price increase for European consumers. If European automakers are unable to absorb the cost of the tariff, they will likely pass it on to consumers in the form of higher prices. Secondly, Chinese companies are rapidly developing new EV technologies. For example, Chinese companies are leading in the development of solid-state batteries, which have a number of advantages over traditional lithium-ion batteries, such as higher energy density and faster charging times.The dragon state is highly promoting EV production and has set ambitious targets for EV sales. This is being done by implementing EV-friendly policies like purchase subsidies and tax breaks.Â
Since China has officially made an entry into the global EV market, if European automakers are unable to compete with Chinese companies on price, they could lose a significant portion of the market to them. Chinese cars already account for 4% of the EU market with competitively priced entry-level EVs priced under €30,000.
Furthermore, it could slow down the adoption of EVs in Europe. If EVs become more expensive, fewer people will be able to afford them. This could slow down the transition to a more sustainable transportation system in Europe. This makes it more difficult for Europe to achieve its climate goals.
What do the automakers have to say?
European automakers argue that the EU must take decisive action in the face of fierce international competition. Luca de Meo emphasized that raising consumer prices for European EVs at a time when market share is being vigorously defended contradicts both sound business and environmental principles. He called for a practical solution of extending the current phase-in period for battery rules by three years.
Automobile Manufacturer’s Association (ACEA), whose members predominantly export to the UK, has estimated that the 10% tariff would cost EU car and truck manufacturers a staggering €4.3 billion over the next three years. The industry warns that without a three-year deferment of the tariff, this financial burden would either have to be absorbed by the sector or passed on to consumers, diminishing its competitive edge and ultimately jeopardizing jobs across Europe.Â
In the UK, Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders, echoed concerns that the tariff would “undermine the entire automotive ecosystem on both sides of the Channel.” Stellantis, the conglomerate overseeing 14 major brands, including Vauxhall, has voiced similar apprehensions in the UK, suggesting that they may be compelled to close down operations in Britain, resulting in job losses if the tariff is implemented. German politicians, mindful of their nation’s robust automotive industry, are also rallying behind the push for an EU-sanctioned delay.
A retrospective and practical analysis
Its time to recall when Brussels and London agreed on a “rule of origin” clause, stipulating a 10% tariff for electric cars with less than 45% of their components originating from the UK or the EU. However, the industry soon realized that it couldn’t meet these criteria due to its reliance on components from China and other foreign sources.Â
One of the most pressing challenges facing the industry is the slow pace of electric battery production and the critical component, lithium hydroxide, required to power these batteries. Germany’s AMG Lithium, the first EU factory manufacturing lithium hydroxide, is on the verge of starting production, but it has an order backlog stretching well into 2026. Stefan Scherer, its CEO, expressed concerns that the EU would struggle to catch up with Chinese competitors due to their substantial lead in this and other related chemical industries.
As a pivotal decision regarding the fate of the tariff looms, the next prime ministers’ summit, scheduled for early October, assumes a defining role in shaping the future of European electric vehicle exports.
