A COMMUNICATION sent by BMW to its partners is causing some consternation among leasing brokers, several of whom have contacted Broker News asking for clarification.
BMW’s communique said that the Trade and Cooperation Agreement (TCA) for post-Brexit UK-EU trade would imply trade tariffs if cars did not have up to 60% of the battery pack sourced locally.
As such, BMW said it could not guarantee prices even for orders placed this side of the deadline, because there was no certainty on the eventual price of the vehicle.
The SMMT has been urgently trying to get the matter resolved saying that “Electrified vehicles that do not meet the new thresholds will be subject to a 10% tariff when traded across the Channel, resulting in a combined cost of £4.3 billion. For the consumer, this could mean an average price hike of £3,400 on EU-manufactured battery electric vehicles (BEVs) bought by British buyers, and a £3,600 rise on UK-made BEVs sold in Europe.”
Perversely, the TCA will not affect ICE cars, making petrol vehicles more competitive at a time when global warming requires the EV vehicle parc to grow quickly.
At the time of writing there was no sign of there being an agreement, although perhaps fortunately the Business and Trade Secretary, Kemi Badenoch, has retained her position in the Prime Minister’s latest Cabinet reshuffle today (13 November 2023).
The EU and UK governments need to reach a new deal on Rules of Origin. The market is turbulent enough already without the risk of a potential extra tariff on certain battery electric vehicles. How manufacturing supply chains will adapt is unknown. Some costs may be absorbed, while others will be passed down to customers. That uncertainty creates an avoidable risk at a time when consumer confidence in BEVs is under pressure. We know the dominating factor in deciding to switch to electric vehicles or not is cost. These tariffs could distort the market and make it difficult for lease companies to keep customers happy in the face of fluctuating prices.
Background to the TCA
- The UK-EU Trade and Cooperation Agreement (TCA) came into effect from 01 May 2021 and set out the post-Brexit terms of the UK’s relationship trading relationship with the EU.
- Within the agreement was a temporary exemption to tariffs imposed on products that aren’t ‘substantially made in Britain or the EU’. Those that meet the requirements qualify for the EU’s zero tariff, zero quota regime.
- Many Battery Electric Vehicle (BEV) manufacturers rely on imports from Asia for a large number of battery parts and materials. This is not due to change immediately, leaving BEVs made in the EU susceptible to import tariffs when the temporary exemption lifts on 1 January 2024.
- There is currently no word on a deal being in place, which could result in price increases on EU-made BEVs
- Increases are hard to predict as the impact of the tariff varies from vehicle to vehicle based on entire manufacturing process. OEMs will also make strategic call on how and where costs are absorbed or passed on
- This could result in non-EU-made BEVs becoming more appealing as consumer motivations are increasingly price driven
- Source: BVRLA
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Ralph Morton is the leading journalist in the leasing broker sector and editor of Broker News, the website which provides information and news for BVRLA-registered leasing brokers. He also writes extensively on the fleet and leasing market in both the UK and Europe.
