The Vauxhall maker says the UK needs to change the Brexit deal

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By Economics Editor Faisal Islam May 16, 2023

Updated 9 minutes ago

Image source, Getty Images

One of the world’s largest automakers has called on the government to renegotiate part of the Brexit deal or risk losing parts of its car industry.

Stellantis, which makes Vauxhall, Peugeot, Citroen and Fiat, has committed to making electric cars in the UK.

But it has now said it can no longer meet Brexit trade rules over the source of spare parts.

A spokesperson said the government was “determined” that the UK would remain competitive in the car industry.

Stellantis called on the government to reach an agreement with the European Union to keep the rules in place until 2027.

You also want to review the parts manufacturing arrangements in Serbia and Morocco.

Just two years ago, the world’s fourth-largest automaker said the future of its Ellesmere and Luton plants was secure.

But now, Stellantis has asked the UK government to renegotiate part of its Brexit deal amid “a threat to our export business and the sustainability of UK manufacturing operations.”

In a request to the Commission to Investigate Electric Vehicle Production, the company said its investment in the UK was based on meeting the strict terms of a post-Brexit free trade deal.

Those rules state that from next year, 45% of the value of an electric vehicle must originate in the UK or EU to qualify for tariff-free trade.

Stellantis said it is now “unable to meet these rules of origin” after rising raw material costs during the pandemic and energy crisis.

It said that if the government could not secure an agreement to maintain the existing rules until 2027, then from next year “trade between the UK and the EU will be subject to a 10% tariff”.

It said this would make domestic production and exports uncompetitive compared to Japan and South Korea.

“To enhance the sustainability of our UK factories, the UK must look into its trading arrangements with Europe,” said Stellants.

A government spokesman said Business and Trade Minister Kemi Badnoch had “raised this with the EU”.

“She is determined to ensure the UK remains one of the best locations in the world for car manufacturing, especially as we move into electric vehicles,” said a spokesperson for Ms Badnoush, who will meet Stellantis executives today.

The spokesperson added that the government has established a fund to develop the supply chain for electric vehicles, and will take “decisive measures in the coming months to ensure future investment in zero-emission vehicle manufacturing.”

The deal over electric cars and batteries was one of the last issues settled in the Brexit negotiations between Boris Johnson and Ursula von der Leyen in 2020.

The Stellantis document warns that uncompetitive EV costs will mean “manufacturers will not continue to invest” and “will move manufacturing operations out of the UK”.

It then lists Ford, BMW’s electric Mini, as well as Honda’s investments in the US following the closure of its UK site in Swindon.

The lack of battery plants in the UK, and a local supply chain that should now be built, remains the primary problem, but it is dwarfed by developments elsewhere.

At a time when there is some uncertainty about the UK’s trade arrangements, the US, China and the EU are now injecting subsidies into this market.

The industry-wide fear is that the UK is missing out on a once-in-a-generation tidal wave of investment around car electrification.

Giga Factory

Earlier this week, French President Emmanuel Macron hosted Elon Musk of Tesla, who hinted he might invest in a giant factory — which makes batteries — in France.

The owners of the UK’s largest factory, Jaguar Land Rover, are currently being acquired by the Spanish government to host a mega-factory that was long assumed to be being built in the UK.

Andy Palmer, former chief operating officer of Nissan and head of battery start-ups Inobat and Ionetic, told the BBC “we’re running out of time” to manufacture batteries in the UK.

It is basically impossible to meet them [EU] Local content rules unless you are getting your battery from a UK or EU manufacturer.”

The cost of failure was clear, he added: “It’s 800,000 jobs [lost] In the UK, it’s mainly those jobs that are related to the car industry.”

David Bailey, professor of business economics at Birmingham Business School, agreed: “If we didn’t make batteries on a large scale in the UK, we wouldn’t have a huge car industry.”

He added that although the government under Boris Johnson wanted to set up a “mega-factory” in the UK, “there is no industrial policy to support that”.

The trade agreement allowed Brexit a “phase in” of strict rules on the origin of parts for electric cars.

The first phase comes next year, and some in the UK car industry are hopeful that the EU itself may want to renegotiate, if its manufacturers are struggling to meet origin requirements.

But the requirements are entrenched in the UK-EU Treaty.

The rules are then due to be tightened again in 2027, and insiders believe British exporters will find it impossible to export cars duty-free at that point, without the batteries being produced in the UK.

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