The UK’s car industry faces a growing challenge as new trade rules threaten to slow the growth of its electric vehicle sector. With major brands like Nissan, Range Rover, and Bentley launching new EV models, the sector is at a critical juncture. Yet a 10% tariff on exports to the EU looms for vehicles that don’t meet stricter local content requirements, set to take effect from January 2024. These rules, part of the EU-UK Trade and Cooperation Agreement, require 55% of a car’s value to come from the UK or EU, with higher thresholds for batteries. The aim was to boost regional battery production, but industry leaders say progress has lagged.
Tariffs and Supply Chain Struggles
Mike Hawes, CEO of the Society of Motor Manufacturers and Traders (SMMT), warned at a July summit that the UK must act quickly to avoid losing ground. “Electrification and localised battery manufacturing have not gone as quickly as anticipated,” he said. The UK car industry relies heavily on EU sales, which accounted for 57% of all exported new cars last year—over 300,000 units. Meanwhile, the UK already faces a 10% tariff on US exports, which cost Jaguar Land Rover nearly £500 million in the 2023 financial year.
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The SMMT estimates that failing to meet content rules could cost the UK £1.4 billion in tariffs annually. This could push up prices for consumers, a concern Hawes stressed: “That figure should be used to reduce costs, not increase prices.” The UK and EU had previously avoided stricter rules in 2024 due to supply chain disruptions from the pandemic and the war in Ukraine. But with those crises easing, both sides now face renewed pressure to raise local content thresholds.
The EU, which exported 1.2 million cars to the UK in 2025—29% of its total exports—may be reluctant to impose heavy tariffs on its own vehicles. The UK, meanwhile, is the EU’s fourth-largest supplier of cars by value. Yet both regions struggle to compete with China’s dominance in battery production and raw material supply. Karthik Selvan of Agratas, building a UK battery plant for JLR EVs, called for policies that recognize the difficulty of shifting supply chains from Asia. “You end up putting tariffs on the very industry you’re trying to support,” he said.
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Protectionism and Uncertain Futures
As the EU moves toward more protectionist policies, the UK finds itself in a delicate position. The EU’s proposed Industrial Accelerator Act offers incentives for locally made EVs, but excludes the UK. SMMT’s Hawes called this a potential “own goal,” given the intertwined nature of European and UK supply chains.
The challenge for both the UK and EU is clear: they must balance the need to boost local battery production with the realities of global competition. For now, the rules of origin remain a sticking point, and the path forward remains uncertain. As Hawes put it, the UK and Europe are “in the uncomfortable position of having to build capability while the policy is pushing for it.” The coming months will test whether they can find a solution that avoids ceding ground to foreign competitors.