EU and UK must strengthen automotive ties to remain globally competitive

The UK and European Union must deepen cooperation on trade, battery manufacturing and critical raw materials to protect their automotive industries from growing global competition, according to a new report from LSE Consulting.

The report, Strategic Cooperation: UK–EU Automotive Value Chains Amid Global Challenges, warns that rising production costs, geopolitical pressures and increasing dependence on overseas battery suppliers threaten the competitiveness of Europe’s automotive sector.

Prepared by the Trade Policy Hub at LSE Consulting for the European Automobile Manufacturers’ Association (ACEA) and the Society of Motor Manufacturers and Traders (SMMT), the research highlights the importance of maintaining closely integrated UK-EU automotive supply chains.

The two markets remain highly dependent on each other, with the EU accounting for 60.4% of UK vehicle exports, while the UK receives 30.0% of EU vehicle exports and is the largest market for EU-built battery electric vehicles (BEVs).

Together, the UK and EU automotive manufacturing industries directly employ approximately 1.37 million people, with millions more jobs supported across the wider supply chain.

Battery supply chains and trade rules pose growing risks

One of the report’s central concerns is Europe’s dependence on imported batteries and critical raw materials as manufacturers accelerate the transition to electric vehicles.

Despite an estimated €72bn invested in European battery and EV manufacturing facilities since 2017, the EU continues to import approximately two-thirds of the lithium-ion batteries it uses, while the UK has a comparatively smaller domestic battery manufacturing base.

The report warns that changes to rules of origin under the UK-EU Trade and Cooperation Agreement, scheduled to take full effect on 1 January 2027, could create additional costs for manufacturers if sufficient locally sourced battery components are unavailable.

It calls for a coordinated approach to the rules, including greater flexibility alongside a joint roadmap to expand battery manufacturing and strengthen supply chains.

Professor Riccardo Crescenzi, Professor of Economic Geography at LSE and lead academic on the report, said:

“This report shows why decisions taken on either side of the Channel affect firms, workers and suppliers on the other, and why a more coordinated approach is in both sides’ interests.

“Our contribution is to use data to show more clearly the scale and structure of these interdependencies, and the risks of treating the two systems separately.”

Calls for closer industrial cooperation

Drawing on data from 62 automotive business groups between 2014 and 2024, alongside industry surveys and interviews, the research recommends closer coordination on industrial policy, investment and regulation.

Key recommendations include recognising UK content within EU rules of origin and including UK-manufactured vehicles and components in proposed ‘Made in Europe’ local-content requirements.

The report also calls for more stable investment frameworks, improved EV charging infrastructure, competitive energy costs and closer cooperation on critical raw materials, recycling and technological innovation.

Sigrid de Vries, Director General of ACEA, said: “The close ties between the EU and UK automotive industries are a strength we cannot afford to undermine.

“Both sides have a shared interest in building on this relationship to create the right conditions for investment, innovation and manufacturing.

“Closer cooperation and pragmatic policy choices will be key to ensuring Europe excels as a competitive place to build and sell vehicles.”

Mike Hawes, Chief Executive of the SMMT, emphasised the importance of maintaining tariff-free trade and protecting integrated supply chains.

“The UK and EU are bound by €80 billion in annual automotive trade and millions of jobs. At a time of intense global competition, this report makes clear the need for both sides to collaborate and remove barriers to trade.

“Our collective response must strengthen both sectors, with the UK included in ‘Made in Europe’ measures, a pragmatic solution to 2027 rules of origin, and stronger integrated supply chains. Get this right and we can attract investment, safeguard jobs and drive growth on both sides.”

The report concludes that without stronger cooperation, both the UK and EU risk becoming increasingly dependent on overseas suppliers and losing ground in automotive manufacturing and innovation, particularly as global competition intensifies around electric vehicles and battery technology.