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The Parliament Brief: The government is lobbying to delay an EV tariff cliff-edge

Post-Brexit, rules-of-origin regulations could hammer the electric car industry and the energy transition.

By Samir Jeraj

Welcome to the Parliament Brief, where Spotlight, the New Statesman’s policy section, digests the latest and most important committee sessions taking place across the House of Commons and House of Lords. Previous editions can be found here.

Who? The Commons Business and Trade Committee took evidence from the Minister for Industry and Economic Security and officials from the Department for Business and Trade and the Department for Energy Security and Net Zero.

Witnesses included: Nusrat Ghani MP, Minister for Industry and Economic Security, Department for Business and Trade; Fred Perry, director of advanced manufacturing at the Department for Business and Trade; and Edmund Ward, deputy director of industrial decarbonisation at the Department for Energy Security and Net Zero.

When? Tuesday 12 September 2023 at 10.30am.

What was discussed? The looming introduction of new rules on origin regulations for electric vehicles (EVs). They will apply to the EU and the UK from 1 January 2024. The regulations include a tariff of 10 per cent on EVs that fail to meet the standards set out in the EU-UK trade agreement, which was negotiated after the Brexit referendum. EVs will need to have 45 per cent of their components from the EU or UK, and batteries already make up around 40 per cent of the value of an EV. The tariff also applies to EU-manufactured EVs being imported into the UK, which will cause issues for countries like Germany. The government and industry are lobbying hard to delay the introduction of the regulations, with both the Department for Business and Trade and the Foreign Office involved. The tariff could hinder EV uptake.

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Why did this come up? The Business and Trade Committee is running an inquiry into batteries for EV manufacturing, which has struggled to establish itself as an industry. For example, a government-championed battery start-up called Britishvolt entered administration in January 2022. The manufacture of batteries for electric vehicles is dominated by China, which has around 77 per cent of global manufacturing capacity compared with around 10 per cent in Europe. 

The hearing also comes a day after the announcement that BMW is increasing its investment in an Oxford manufacturing plant to £6bn in order to produce electric vehicles. 

So what did they say? Ghani said that the new tariffs were anticipated to affect a greater proportion of cars being imported into the UK than vice versa. She said she was confident the issue will be resolved because it would be an “absurd” situation for there to be tariffs on EVs when there aren’t on combustion engine cars. She added that the potential effect could be to further reinforce China’s dominance in the EV sector.

Given the topic of the inquiry, the committee was keen to quiz Ghani and her officials about how the manufacturing of batteries in the UK relates to this challenge. The committee pressed her on whether the UK was moving fast enough on building manufacturing capacity of “gigafactories” that make products related to electrification, including EV batteries. Both Tata and Envision are building gigafactories in the UK, which would have a combined capacity of 60 gigawatts compared against a target of 89 gigawatts by 2030. Ghani said there was the ambition to go beyond that figure.

[See also: Are we there yet with electric cars?]

Fred Perry, director of advanced manufacturing at the Department for Business and Trade, said that the original time line for the rules-of-origin tariff set in 2019 was no longer achievable because of both the Covid pandemic and the shortage of semiconductors. But he was not able to give a date for when the local supply chain for EVs would be established because those are subject to “ongoing negotiations”.

The effect of the Inflation Reduction Act in the US also came up, with Ghani saying it had had a “profound impact” on advanced manufacturing and a focus on “resilient” supply chains. She added that her department is consulting on a “battery strategy” (and a supply chain strategy to be produced later this year), to address some of those issues around supply chains, and identifying new technologies and opportunities. There is also an advanced manufacturing strategy to be produced with the autumn statement, according to Perry. 

The tight labour market and supply of skills was also raised. The minister said they were countering perceptions that automotive industries were not for new workers. She said that she was working with industry and the Department for Education to develop apprenticeship standards and encourage more people into those jobs. 

The dominance of China was a significant concern, both in terms of the geopolitics and the practicalities: China dominates the manufacturing of EVs and batteries, but also the production of the “critical minerals” needed to make them. As such, Ghani has decided to refresh the Critical Minerals Strategy, published by the government last year, and she and Perry highlighted work on mining and refining lithium in the UK – although there isn’t a target for “homegrown” critical minerals. 

Any conclusions? The government is clearly in a difficult position and the Minister acknowledged the impact that the tariffs would have on car manufacturing, but also highlighted that companies are investing in production in the UK. Ghani acknowledged that the policy sits between several departments, which poses its own challenges.

Onshoring more of the EV supply chain is a larger strategic issue (hence all the strategies, no doubt), which engages with the UK’s skills and labour challenges and the recognised problems of dependence on China. Historically, governments in the UK, Europe and US tend to do whatever is required to keep car manufacturing going, and have carved out exemptions where they believe necessary. Given the number of jobs and the perceived strategic value of the industry and associated manufacturing, it seems pretty likely that it will get a lot of attention from policymakers.

What next? This was the inquiry’s final evidence session, so expect a report to be published soon – though there is no timetable yet. Expect the debate around the tariff to rumble on until after January, assuming the UK and EU are unable to come to an agreement in time. 

[See also: Should I buy an electric vehicle?]

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