Brexit deal poses ‘existential threat’ to UK car manufacturing, industry warns

The prime minister Rishi Sunak is facing pressure from the car manufacturing industry to renegotiate the 'Trade and Co-operation Agreement' (TCA) with the European Union (EU).

Stellantis, the parent company of Vauxhall, Citroen, Peugeot and Fiat, has stated it will not be able to meet its commitment to making electric vehicles at its Ellesmere Port and Luton plants once Brexit tariffs begin to be enforced.

"If the cost of electric vehicle manufacturing in the UK becomes uncompetitive and unsustainable, operations will close," Stellantis said in a submission to a House of Commons committee. "Manufacturers will not continue to invest and [instead will] relocate manufacturing operations outside of UK, as seen with previously established UK manufacturers such as Ford and Mini."

In the document, the company described the agreement between the UK and the EU as a “threat to our export business and the sustainability of our UK manufacturing operations”.

Stellantis, which employs more than 5,000 people in the UK, was responding to an enquiry into the supply of batteries for EV manufacturing in the country. 

The world’s fourth-biggest carmaker committed to making electric vehicles at its UK plants two years ago. However, from 2024, the company is expected to face 10 per cent tariffs for exporting its UK-made cars into the EU, which would make them uncompetitive with vehicles manufactured within the EU or in countries such as Japan and South Korea. 

In order to qualify to trade without tariffs, the TCA states that 45 per cent of an electric car's value should originate in the UK or EU. However, Stellantis stated the rise in the cost of raw materials during the pandemic and energy crisis had made the company “unable to meet these rules of origin”.

For this reason, Stellantis has called on the government to reach an agreement with the EU to maintain existing rules until 2027.

“To reinforce the sustainability of our manufacturing plants in the UK, the UK must consider its trading arrangements with Europe,” Stellantis said. “If we are unable to rely on sufficient UK or European batteries, we will be at a major competitive disadvantage. In particular against Asian imports.

“We need to reinforce the competitiveness of the UK by establishing battery production in the UK.”

If nothing is done on the matter, the Stellantis document warns that uncompetitive electric vehicle costs will mean "manufacturers will not continue to invest" and will "relocate manufacturing operations outside of the UK".

Stellantis added there will be “insufficient battery production” in the UK or Europe to meet government targets in phasing out petrol and diesel vehicles by 2025 and 2030. This view was supported by a submission sent by the Society of Motor Manufacturers and Traders (SMMT).

Professor David Bailey, from Birmingham Business School, told BBC's Radio 4 Today programme: “I think there is a kind of existential threat to the UK car industry. Car makers have been saying for some time they can’t meet those rules as they tighten up and they’re going to potentially be facing tariffs.”

In response to the industry warning, Labour leader Sir Keir Starmer said “we need a better Brexit deal” to ensure firms such as Vauxhall can continue to operate in the UK, while the party's shadow business secretary Jonathan Reynolds stated that manufacturers had been let down by a "government in chaos".

Reynolds added: "The jewel in the crown of British manufacturing is at risk without urgent action from the government. This is an indictment of a government that has both failed to make Brexit work for businesses and is unable to harness the opportunities of the green transition.

“Labour’s industrial strategy will work with industry to build the gigafactories we need to keep jobs in the UK rather than ship our world-class car industry overseas.”

A government spokesman said the Business and Trade Secretary has raised this with the EU and "is determined to ensure the UK remains one of the best locations in the world for automotive manufacturing". 

“We are supporting the industry through the Automotive Transformation Fund and Advanced Propulsion Centre to develop a high-value end-to-end electrified automotive supply chain in the UK and support cutting-edge automotive technologies," they added.

“In the coming months, the government will build on these interventions with decisive action to ensure future investment in zero-emission vehicle manufacturing.”

The UK signed the latest iteration of its Brexit agreement - known as the 'Windsor Protocol' - earlier this year. However, the restrictions regarding electric cars and batteries had already been negotiated in the deal agreed between then-prime minister Boris Johnson and Ursula von der Leyen, the president of the European Commission, in 2020.