The British car industry is facing a challenging economic situation, with multiple factors contributing to its difficulties. Brexit, the decline in car purchases during the pandemic, and the global semiconductor shortage have all had a negative impact. While domestic demand has started to recover, car exports from the UK have seen a significant decline. Additionally, starting in January 2024, a customs agreement with the European Union could further add to the industry’s adversities.
The customs regulations agreed upon between the UK and the EU as part of Brexit state that vehicles with less than 45 percent added value in either the EU or the UK will be subject to a 10 percent customs duty. This would particularly affect electric cars, as many of their electronic components, including battery cells, are sourced from Asian countries. Consequently, British car manufacturers are concerned about their competitiveness in the EU export market. European manufacturers also fear potential disadvantages when exporting to the UK.
At an international industry conference in London, Mike Hawes, the head of the Association of British Car Manufacturers and Dealers (SMMT), has called for a postponement of the introduction of these tariffs for three years. One impact of the regulations is that vehicles with combustion engines would be preferred over electric cars, as the European value-added share exceeds the 45 percent limit set by the regulations. The success of Hawes’ proposal is uncertain, as it would require both sides to agree, and changing the customs agreement may not be a simple legal process.
The opposition Labor Party has criticized the governing Tories for their failure to increase the UK’s battery manufacturing capacity over the years. Labor transport spokeswoman, Louise Haigh, expressed her disapproval in the UK Parliament. The outcome of this situation remains to be seen, as both the British and European Union governments have a vested interest in finding a mutually beneficial solution.
