Germany backs delay to EV tariffs in boost to Sunak

Germany is pushing the European Commission to postpone tariffs on electric vehicle sales between the UK and the EU after industry warned that the measure would backfire.

In a boost for Rishi Sunak’s government, Berlin now supports the UK’s calls for a three-year delay to the duties, two people familiar with the situation said.

At present, Britain’s post-Brexit trade deal with the EU is set to impose 10 per cent levies on EVs shipped across the Channel from January if they have batteries made outside Europe.

The German shift followed debate within the country’s three-party coalition, with chancellor Olaf Scholz taking the final decision. 

Brussels has refused to date to delay the tariffs, but, as the EU’s biggest member, Berlin has considerable influence with commission president Ursula von der Leyen, a former German defence minister.

The commission said: “These rules of origin aim to support the EU’s strategic objective to develop a strong and resilient battery value chain in the EU.”

Britain has maintained for months that hasty introduction of the tariffs will heap excessive costs on the region’s industry as it seeks to compete with Chinese EV manufacturers — arguments that big European carmakers have also backed.

The UK is a key market for EU producers. ACEA, the European Automobile Manufacturers’ Association, has said EU carmakers will lose €4.3bn and cut production by almost 500,000 electric vehicles over the next three years if tariffs kick in. 

Von der Leyen will meet Sunak, Britain’s prime minister, to discuss the issue on the sidelines of the G20 summit in India this weekend.

The two sides have already improved relations from the post-Brexit low point under Boris Johnson’s administration, with this week’s agreement for the UK to rejoin the Horizon research programme, but the commission is not united on whether to delay the duties.

“The EU side can see it makes no sense to hobble the European car sector when Chinese EV imports are rising,” a UK official said, expressing hope that the EU “will agree to swerve before the cliff edge” but adding: “ultimately it is up to them”.

The official described talks between Kemi Badenoch, UK trade secretary, and EU trade commissioner Valdis Dombrovskis as “productive”. 

But Dombrovskis is pushing for a deal against opposition from colleagues, three people familiar with his thinking said.

Thierry Breton, the French internal market commissioner, and Maroš Šefčovič, who oversees both relations with the UK and the battery industry, are holding out against a deal.

The two commissioners maintain that a postponement — which Brussels can decide upon — would reduce the incentive for battery makers to open plants in Europe.

The Brexit trade deal’s “rules of origin” stipulate that, to avoid the duties due to begin in January, at least 60 per cent of their value of EVs’ batteries and 45 per cent of their overall parts must be sourced from the EU and the UK.

But Chinese imports, which already pay the tariff, accounted for almost a third of new EV sales in the UK in 2022 and are growing fast. 

Sigrid de Vries, head of ACEA, called on the EU not to be “rigid” about rules when battery investment had been delayed by “reasons that were beyond everyone’s control” such as the pandemic.

She added that the rules of origin would make it harder for EVs to be “affordable for people and small businesses to buy”.

Ford, which is investing €2bn to turn its Cologne factory in Germany into an EV plant and is reliant on exports to the UK market, is also among those opposing the plan.

Martin Sander, the group’s European boss, said it was currently “almost impossible to hit the target to qualify for the rules of origin” — although he told the FT that “in the long run, the concept makes sense.”

Sander said imposing the rules at present would drive up prices and “disadvantage customers, and does absolutely not support the overall ambition to bring the [electric vehicle] adoption up”. 

The German government and the European Commission have yet to respond to requests for comment.