On 1st January 2024, changes are incoming for the automotive industry as part of the UK and EU’s Brexit deal.
With the Trade and Cooperation Agreement, which came into force in May 2021, Rules of Origin were introduced. To qualify for tariff-free trade between the UK and EU, 55% of a vehicle’s value must be locally sourced. If the vehicle falls short of this, then a tariff of 10% is applied on trade between the UK and EU.
For typical internal-combustion vehicles this is not considered an issue, with plenty of local suppliers and an established supply chain. However, anticipating issues for the electrical-vehicle market, a delay has been in place. This is where changes are coming at the start of 2024.
| Date | Local Sourcing % Requirement |
| 1st May 2021 | 40% |
| 1st January 2024 | 45% |
| 1st January 2027 | 55% |
At the time these deadlines felt reasonable.
However, with Covid-19 disruption and its impact on the automotive industry, the widely held belief is that the goalposts have moved. Added to that is the UK government’s delay to the ban on petrol and diesel cars, from 2030 to 2035.
Despite these disruptive events for businesses in the automotive industry, the terms set out in the TCA stand and from 1st January 2024, 45% of an electric vehicle’s value must now be from locally sourced suppliers, rising to 55% 2 years later.
“What has been negotiated, has been negotiated and I think it’s very important to stick to a treaty when it has been so difficult to do it. And when we speak about the automotive system, everyone who is part of this ecosystem I have to take care of, not one single category.”
Thierry Breton, European Commissioner.
This comes just as the UK new car market returns to pre-pandemic levels. In November 2023, it grew by 9.5% with 156,525 new vehicle registrations. That is just 96 units down on the figures from 2019.
Furthermore, it’s the hybrid vehicles which appear to be driving the recovery. Hybrid electric vehicle and plug-in hybrid vehicle sales, rose by 27.8% and 55.8% respectively. Added to this is the UK government regulation next year that 22% of new cars sold by each manufacturer must be zero-emission.
Combined, these figures highlight the problem of forcing an industry which isn’t ready, into local supply. China has a large stake in the supply of lithium hydroxide, a critical chemical for batteries, which can account for up to 45% of the cost of an electric car. In 2022, China exported 93.4 million kilograms of it. For comparison, Chile, the second largest exporter, ‘only’ sold 15.2 million kilograms.
“Britain’s new car market continues to recover, fuelled by fleets investing in the latest and greenest new vehicles. With car makers gearing up to meet their responsibilities under new market legislation, and COP28 currently underway, now is the time to take sensible steps that will multiply that economic growth and minimise carbon emissions. Private EV buyers need incentives in line with those that have so successfully driven business uptake – and workable trade rules that promote rather than penalise the transition.”
Mike Hawes, SMMT Chief Executive.
There are no signs from the EU or UK government’s that these changes to rules of origin will be delayed. From the 1st January 2024, electric vehicle and component producers will be required to show at least 45% local sourcing or face a 10% tariff on trade between the UK and EU.
What are rules of origin?
Rules of origin are a set of regulations that determine the national source of a product. The main purpose of rules of origin is to prevent non-qualifying goods from taking advantage of trade preferences by entering a country through a preferential trade agreement.
In the case of the automotive industry, a finished electric vehicle qualifies for tariff-free trade if 45% of it is sourced locally (from 1st Jan 2024).
Proving that a product is compliant with rules of origin typically involves providing documentation that demonstrates the product's eligibility for preferential treatment outlined in the trade agreement. This usually takes the form of a certificate of origin or supplier declaration.
