The fact that a Brexit deal has been reached between the United Kingdom and the European Union is good news in itself. However, it turns out a bit less favorable for car manufacturers than hoped for. Most manufacturers, however, are cautiously optimistic, although concerns remain.
The British car industry has held its breath in recent months while negotiations on the Brexit deal were held in Brussels. An agreement has now been reached, but that is less favorable than manufacturers had hoped. The limit values ​​for free trade are still quite a long way from what they would have liked.
To begin with, fuel cars must consist of at least 55 percent locally produced parts. Otherwise, import tariffs will be charged for exports to the EU. That is 5 percent more than what the manufacturers had bet on, reports Automotive News. For electric cars and hybrids, the limit is 40 percent. No less than 10 percent more than hoped for. Up to and including 2023, batteries may consist of 70 percent non-locally produced parts. From 2024 to 2026 that will drop to 50 percent. That gives the British some room to set up more battery production, for example. Auto parts that are not produced in the UK and not in the EU were already identified as one of the biggest concerns for manufacturers in September.
Manufacturers cautiously optimistic
Especially for Toyota and Nissan there is a potential stumbling block here. They would use so many parts from outside the UK and the EU that the previously set limit values ​​may not be met for some cars. This then leads to a different import status for those cars and therefore also to higher costs to be able to sell them in the EU. In response to Automotive News tells Nissan that it has yet to find out if the UK-built Leaf is now in trouble. Toyota expects to be on the safe side with the Corolla.
The deal is of course also important for Groupe PSA. After all, it is still building Vauxhalls in the UK. The Ellesmore factory may also be building the next Astra, but that still depends on how the Brexit negotiations turn out. In an initial response, PSA is cautiously positive about the outcome of the deal. BMW, parent company of the British Mini and Rolls-Royce, is also cautiously positive. Both companies are reportedly going to scrutinize the details to see how to move forward in the UK, but it doesn’t look unfavorable at first.
Jaguar Land Rover expects to continue without additional trade tariffs. So that looks good. The share of parent company Tata Motors therefore shot up a few percent at the beginning of this week. Bentley previously indicated that a no-deal Brexit would be a major blow to profits, but that it would do everything it could to keep building in the UK. That there is now a deal is of course even better news.
Experts not yet reassured
While things don’t necessarily look wrong for most now, things could still get tricky in the years to come. The increasingly lower threshold for non-locally produced batteries, for example, plays a major role in this. The CEO of SMMT, the British trade association of car manufacturers, emphasizes this opposite Automotive News. He believes that the British government should now invest money at an accelerated pace in facilitating such production.
David Bailey, an economics professor from Birmingham Business School, is also not yet thrilled. He calls the deal ‘thin’ and expects that this will also generate a lot of extra costs for the manufacturers based in the UK. According to him, it will depend strongly on how flexible the conditions are. He hopes the deal will bring back investment in British car production, rather than the retreat of recent years.