Restrictive EU-UK trade ‘rules of origin’ for EV batteries could cost automotive sector billions, ACEA warns

Passenger car registration numbers in the EU market increased by 18.5% year on year in May 2023, making it the tenth consecutive month of growth, the European Automobile Manufacturers’ Association (ACEA) said on June 21.But in a separate statement on June 20, the association warned that a more restrictive 10% “rules of origin” tariff to be imposed on electric vehicle (EV) batteries, traded under the EU and UK Trade and Cooperation Agreement (TCA), could result in the sector paying out €4.3 billion ($4.7 billion) over three years.

The restrictions would require that all battery parts and critical battery materials be produced in the EU or UK to qualify for tariff-free trade. At the moment, batteries must simply be assembled in Europe to be eligible for tariff-free transactions.

The UK is the EU’s principal export market for EVs, accounting for almost 25% of exports, so the move would result in a reduction of EV production by around 480,000 units, the trade body said. The new rules were set to be introduced on January 1, 2024.

“Because we face increasing competitive pressures from abroad, the application of these rules would have severe consequences for electric vehicle manufacturing in Europe, at the very time when we should be massively ramping-up sales and production,” ACEA director general Sigrid de Vries said.

The organization said that the changes would be “detrimental” to the EU automotive industry, the largest end-use sector for flat steel products such as hot-rolled coil, so the ACEA was calling for a three-year postponement to their introduction.

De Vries said that, despite “massive investment” in the European battery supply chain, more time was needed to build up the required capacity. “In the meantime,” he added, “vehicle manufacturers must rely on battery cells or materials imported from Asia.”

Despite the investment, however, panelists at Fastmarkets’ Lithium Supply & Battery Raw Materials conference, held in Las Vegas in June, said that Europe would probably remain a net importer of battery raw materials due to the challenges of developing mining projects in the region.

In addition to the problems of sourcing battery raw materials domestically, China-made electric vehicles currently comprised one-third of the UK sector, despite 10% import duty.

Consequently, the ACEA said that the change to the EU-UK free trade agreement would also result in a loss of competitiveness in the global EV market.

EV support for a struggling sector
The potential for losses in both output and profit in the automotive steel-using sector was of particular concern in light of the challenges already faced by the industry.

These have included repeated disruptions to supply since 2022, as well as rises in energy costs following the Russian invasion of Ukraine last year, according to European steel association Eurofer’s Economic And Steel Market Output Report for 2023-24, published in May.

Eurofer added that low consumer confidence and squeezed incomes, as well as high inflation and an uncertain economic outlook, have weakened general demand in the sector.

War-related uncertainties have also affected demand, but Eurofer said that moderate growth in the automotive industry was expected in 2023 (+1.2%), “provided that war-related disruptions and uncertainty ease substantially as a result of an improved economic and industrial outlook.”

But the trade body forecast a drop in automotive output in 2024 by 1.8%.

The steady but weak automotive consumption has been dragging prices downward in the markets for flat steel products such as HRC in recent months, with prices on a downward trend since April.

Fastmarkets’ daily calculation of its steel hot-rolled coil index, domestic, exw Northern Europe, was €674.10 per tonne on Friday June 30, down by €73.53 per tonne from €747.63 per tonne a month earlier.

Meanwhile, demand for EVs was expected to go up because of the EU’s revised regulations on CO2 emissions performance, adopted in March this year, requiring all new cars and vans registered in the Union to be zero-carbon-emissions by 2035.

“Political commitment at EU level toward the full adoption of EVs by 2035 should prove supportive [of the market], despite the fact that general car demand appears to depend on fragile consumer confidence throughout 2023 and possibly 2024,” Eurofer said in its report.

In the UK, an equivalent plan to transition cars and vans to zero emissions by 2035 was approved by the government in November 2020, with sales of petrol and diesel vehicles to be phased out by 2030.

According to UK car industry trade body, The Society of Motor Manufacturers and Traders (SMMT), EVs have become the second-most-popular vehicle type in terms of sales, representing 15.4% of the UK car market in April 2023, up by 4% year on year from 10.8% in 2022.

Petrol-powered cars still dominate the market but have fallen year on year to a 42.8% market share from 45.8% in April 2022.

According to ACEA, however, the changes to the EU-UK free trade agreement could hamper automotive production output in Europe despite an expected boom in demand in its biggest export market.

Published by: Holly Chant