EU’s rules of origin could threaten competitiveness of Nissan Leaf and Land Rover EVs, among others
The SMMT has warned of a critical threat to the UK’s EV manufacturing industry just as it sits on the cusp of significant numbers with new models such as the Nissan Leaf, Range Rover Electric and Bentley Torcal.
The threat comes in the form of a 10% tariff on cars exported to the EU if they don’t comply with tougher local content rules to be enforced from 1 January 2027 as part of the EU-UK Trade and Cooperation Agreement (Brexit agreement).
The change in so-called rules of origin stipulate that 55% of the value of the car must come from either the EU or the UK, rising to 70% of the battery pack on EVs and plug-in hybrids and 65% of the battery cells.
The rules were devised as an incentive to build out the local battery industry, but that has proven tough to achieve in the face of much cheaper and faster-moving battery tech from China.
“Electrification and localised battery manufacturing has not gone as quickly as anticipated,” SMMT CEO Mike Hawes said in a speech at the body’s annual Summit on 1 July. “We must find a joint solution quickly or we cede the field.”
The UK car industry relies on EU sales, which accounted for 57% of all new cars exported last year, at more than 300,000. The country has already suffered the imposition of a 10% tariff on US sales, its second-biggest export market, which cost JLR alone around £500 million in the financial year ending March 2026.
The SMMT estimates that non-compliance with the new rules of origin could end up costing the UK £1.4 billion in tariffs. Non-compliant cars from the EU would also be hit.
“That [figure] should be used to reduce costs not increase prices,” Hawes said.
The EU and UK have come up against this cliff edge on tariffs before, due to the stepped nature of the rules of origin, which were first due to get tougher from January 1 2024. However, in a last-minute deal, the two sides agreed to keep to the original figure of 40% local UK or EU content and 30% on cells and packs, instead of moving to the tougher interim targets.
Back then, the reason communicated was both the UK and EU were suffering the disruption of the global supply chain due to the Covid pandemic and the Russian invasion of Ukraine, which dramatically hiked energy costs.
Now the UK and EU must meet again to decide future content levels. The EU will be motivated not to penalise its exports too much, given that the UK is the single largest export market for its cars, accounting for more than 1.2 million in 2025, which was 29% of its total car exports. The UK meanwhile was the EU’s fourth-largest supplier of cars by value.
The EU is struggling to increase the level of local battery production in the face of stiff Chinese competition and its stranglehold on supply of key materials and equipment.
“The uncomfortable truth for the UK and Europe is that this capability is just beginning to evolve, and that is where the timing of the policy is so absolutely difficult,” said Karthik Selvan, chief procurement officer for Tata-owned Agratas, which is building a battery plant in Somerset to supply JLR EVs. “The rules of origin policy promotes local manufacturing, but it assumes capability is actually available.”
Agratas called for a policy that recognises the difficulty battery producers face as they try to localise supply chains away from Asia. Otherwise law makers will “end up putting tariffs on the very industry” that they are trying to support, Selvan said.
The EU isn’t expected to go against its own interests by risking tariffs on its EVs, but the world has become a lot more protectionist since the two sides agreed not to impose the tougher rules of origin at the start of 2024.
For example, the EU has proposed the Industrial Accelerator Act, containing a raft of incentives for EVs made in the EU, again with its own local content rules to define what Europe-made means. The UK naturally falls outside that but is strongly lobbying to be included.
Given how entwined the EU’s and UK’s supply chains are, not including the UK “risks becoming one of the most spectacular own goals in history”, said Hawes.
All this means the UK is in the “the perpetual state of having to deal the EU from the outside following Brexit,” trade expert Sam Lowe told the SMMT Summit. The newly protectionist EU might ask the UK to fall in alongside it with various measures essentially to restrain the Chinese, which are currently outcompeting European volume players on cost and in some cases technology.
“It could involve tariffs on [Chinese] electric vehicles, which we don’t do yet,” said Lowe, “or it could mean that we’re suddenly having greater scrutiny of [Chinese] investment into the UK, because they’re worried about the ownership structures and whether they’re being used to circumvent the EU measure. In every instance, we’re going have to give something back.”
