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SMMT warns no deal tariffs would undermine Britain's green recovery

By Graeme Roberts | 22 October 2020

Leaf on the line: The 10% WTO tariff would add about GBP2,000 to the average cost of UK built BEVs exported to the EU

Leaf on the line: The 10% WTO tariff would add about GBP2,000 to the average cost of UK built BEVs exported to the EU

No deal - exiting the EU on 31 December without a trade deal with the bloc, thus reverting to World Trade Organisation (WTO) terms imposing a 10% tariff on finished vehicle trade - would be the worst possible outcome and undermine Britain's green recovery, the Society of Motor Manufacturers and Traders said on Thursday (22 October).

The industry lobby group claimed no deal would prompt a GBP2,800 "average price uplift" on EU-built electric vehicles (EVs) effectively cancelling out the UK's existing plug-in car grant of up to GBP3,000.

The "shock" of higher cost risks reducing increased BEV demand next year by at least 20%, hampering the UK's efforts to reach ambitious emissions reduction targets, the SMMT said.

"Tariffs would also add GBP2,000 to the cost of British built battery electric cars sold in Europe, damaging international competitiveness as the UK strives to become a global leader in electromobility."

The SMMT has urged the EU and UK to re-engage "with vigour in the Brexit negotiation process, honouring the  commitment to get a good deal done".

"New calculations illustrate the high stakes of no deal, not only for the automotive sector but for hopes of a green recovery from the coronavirus crisis," it said.

"No deal would be the worst possible outcome for UK Automotive, for car buyers and for the country's ambitions to become a world leader in transport decarbonisation. The immediate imposition of blanket tariffs under WTO rules would add billions to the cost of trade and, crucially, to the cost of building and buying electric vehicles.

"The 10% no deal WTO tariff would add at least GBP4.5bn to the annual cost of fully assembled cars traded between the UK and the EU, with an average hike of GBP1,900 per EU built vehicle sold in the UK," the SMMT said.

"However, new analysis shows that for fully electric cars fitted with expensive battery technology, the cost increase is even higher, at GBP2,800, effectively making the GBP3,000 plug in car grant for these vehicles null and void.

"Moreover, this tariff would also add some GBP2,000 on to the average cost of UK built battery electric cars (BEV) exported to the EU [primarily Nissan's Sunderland made Leaf - ed], making our own products less competitive and the UK far less attractive as a manufacturing investment destination. This would further hamper the UK's ambition to be a global leader in zero emission vehicle development, production and deployment, severely damaging industrial competitiveness."

The SMMT said the UK and EU automotive industries were deeply integrated, with around two thirds  of all battery electric cars on sale in the UK built in Europe. 

"New tariffs would hold back the evolution of the electric car from a niche technology to one with mass affordability."

UK car buyers are expected to register about 78,000 BEVs this year, with further growth expected in 2021.

However, the SMMT estimated the "price shock" caused by these tariff increases "could reduce the increased demand for BEVs next year by at least 20%, even before the impact of potential, border delays, supply chain disruption and currency fluctuations are taken into account, hindering efforts to accelerate uptake and decarbonisation".

Chief executive Mike Hawes said: "Just as the automotive industry is accelerating the introduction of the latest electrified vehicles, it faces the double whammy of a coronavirus second wave and the possibility of leaving the EU without a deal.

"To secure a truly sustainable future, we need our government to underpin industry's investment in electric vehicle technology by pursuing an ambitious trade deal that is free from tariffs, recognises the importance of batteries in future vehicle production and ensures consumers have choice in accessing the latest zero emission models. We urge all parties to re-engage in talks and reach agreement without delay."

The SMMT said the UK lagged behind many of Europe's major electric vehicle markets for incentives. Car buyers in Germany enjoy a purchase incentive of up to GBP8,160 per BEV whilst French buyers are lured with a GBP6,350 grant.

"To deliver the ambitious environmental goals – to which electric vehicles will make a significant contribution - there must be a long-term commitment to competitive incentives, including full VAT exemption for all zero emission capable cars," the SMMT said. "This would potentially drive some 1.4m BEV sales over the next five years, with an estimated 16% market share by 2025 compared with around 5% today."