Throughout the four difficult years of Brexit negotiations, the automotive industry was at the heart of talks. Given that 80% of vehicles built in the UK are exported – a majority of which to the European Union (EU) – and that a large proportion of spare parts come from the EU, securing an agreement to exempt the industry from customs duties was a matter of survival. At the end of 2020 – to the general relief of the industry – a compromise was reached: No customs duties would be imposed.
Yet two and a half years later, the issue has been brought back to the table. Stellantis, the world’s fourth-largest carmaker – with a high profile in the UK thanks to its Vauxhall brand – has threatened to close its factories if the Brexit agreement is not renegotiated. Secretary of State for Business and Trade Kemi Badenoch held an urgent video conference on May 17 with executives from the French manufacturer. The meeting was “constructive,” according to a source quoted by the BBC. Given that Stellantis has two factories and 5,000 employees in the UK, the political stakes are high for the British government.
The problem comes from rules contained in the Brexit agreement – technical but fundamental ones. In order to take advantage of the exemption from customs duty, it is necessary to prove that the goods are indeed “made in UK” (or “made in EU” if exported in the other direction). The problem is that in the era of international supply chains, where components come from all over the world, at what point can a vehicle be considered to be British? The Brexit deal gave an answer, stipulating that 40% of the value of the vehicle’s parts be manufactured either in the UK or in the EU.
Furthermore, these rules will become tougher: In 2024, that share will rise to 45%, and in 2027 to 55%. Things are even more complicated for electric vehicles, with a specific rule for batteries: By 2027, 70% of them will have to be made either in the UK or in the EU.
‘Manufacturers will relocate their factories’
Yet Stellantis has warned that such a goal is now impossible to achieve. “There will not be sufficient battery production supplies in the UK or Europe by 2025 or 2030, despite the fact that this is key to meet the [Brexit] agreement under the current Rules of Origin,” the company pointed out in a submission delivered to a UK parliamentary committee in February, but revealed only on Tuesday, May 16. The UK has only one major battery plant under construction, near the Nissan plant in northeast England. In continental Europe, current projects are further along, but still inadequate.
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