“Made in EU” regulations threaten future of UK automotive industry

The EU’s proposals for new “Made in EU” regulations, designed to strengthen Europe’s industrial base, have caused outcry among the UK automotive sector amid concerns they risk doing the opposite and could result in major suppliers such as Nissan closing UK factories because of the potential impact on the supply chain.

The European Commission has voted to adopt the Industrial Accelerator Act (IAA), which is intended to increase demand for low-carbon, European-made technologies and products. 

In line with the recommendations of the Draghi report, the IAA introduces targeted “Made in EU” and / or low-carbon requirements for public procurement and public support schemes which will apply to selected strategic sectors, including both cars and net-zero technologies like batteries.

The aim is to increase manufacturing’s share of EU GDP to 20% by 2035, but the proposals have been heavily criticised as discriminating against car manufacturers supplying UK-made vehicles and components, particularly to the fleet and electric vehicle (EV) markets in Europe.

For example, current proposals indicate an EV would need 70% of the cost of its parts to be manufactured in the bloc, excluding the battery, ⁠to qualify for EU subsidies. The draft also requires minimum EU-based content in the battery pack.

In addition, under the Commission’s proposal, only parts from EU members plus Iceland, Liechtenstein and Norway – the European Economic Area – would ​count as local content, though ⁠it would consider parts from “trusted partners” and take World Trade Organization agreements into account.

Damage to trading relationship

The Society of Motor Manufacturers and Traders (SMMT) warns that, as drafted, the IAA risks damaging a trading relationship worth almost £70 billion annually.

“The strict EU assembly rules and EU27 eligibility criteria currently proposed would effectively put UK manufacturers at a systemic competitive disadvantage in the EU market, a situation which may also be in breach of the EU-UK Trade Cooperation Agreement – the Brexit deal.

“The UK government and European counterparts must work together urgently to resolve the situation, extending full, trusted partner status to the UK automotive sector. This is not just to ensure choice for British and European consumers – especially in zero emission vehicles – but to deliver the economic growth and security everyone craves.”

Nissan – €550 million at risk

Nissan, one of the largest automotive employers in the UK with about 6,000 workers at its Sunderland factory which supports a further 30,000 jobs across the supply chain, has raised alarm bells about the proposals.

The company says over €550 million paid annually to EU suppliers for Sunderland-made EVs would be at risk — arguing this is “directly harming the very supplier base the policy aims to protect”.

It maintains that a definition limited to the EU 27/EEA “ignores how Europe’s automotive supply chain actually works”, saying that “EU and UK manufacturing are deeply intertwined, and restricting eligibility for public support to EU only assembly would damage competitiveness, disrupt integrated supply chains, and undermine Europe’s EV transition.”

“A narrow definition of ‘Made in Europe’ risks dismantling the very supply chains that make Europe competitive. We urge policies which give holistic consideration to the auto industry.”

Currently Annex III of the IAA gives the requirements for EV manufacture and for the supply of corporate cars and vans as being:

• the vehicle is assembled within the Union;
• the ratio between the total ex-works price of vehicle components – excluding the vehicle battery – originating in the Union and the total ex-works price of all components – excluding the battery – is at least 70%;
• the vehicle’s traction battery contains at least three main specific components of batteries, among which the battery cells, originating in the Union;
• the vehicle’s traction battery contains at least five main specific components of batteries, among which the battery cells, the cathode active material, and the battery management system, originating in the Union;
• the ratio between the total ex-works price of e-powertrain components originating in the Union and the total ex-works price of all e-powertrain components is at least 50%;
• the ratio between the total ex-works price of main electronic systems originating in the Union and the total ex-works price of all main electronic systems is equal to or greater than 50%.

The proposed Regulation will now be negotiated by the European Parliament and the Council of the European Union before its adoption and entry into force.