Years On, Brexit's Shadow Lingers: Navigating the New Reality for the UK Automotive Industry
The Unrelenting Challenge: "Rules of Origin" and the Threat of Tariffs
At the heart of the industry's post-Brexit headache is the Trade and Cooperation Agreement (TCA) and its complex "rules of origin." In simple terms, for a UK-made car to be exported to the EU without facing a 10% tariff, a certain percentage of its components' value must originate from either the UK or the EU.
This has become an existential issue with the industry's rapid shift to electric vehicles (EVs). The most valuable component of an EV is its battery, and for years, the UK has lacked the domestic battery manufacturing capacity (or "gigafactories") to meet these thresholds. Most EV batteries were being imported from Asia.
While a last-minute agreement in late 2023 postponed the imposition of these stricter rules, the threat has not disappeared. It has merely been delayed until 2027. This looming deadline is creating immense pressure and uncertainty. Automakers in the UK are in a race against time to localize their battery supply chains. Failure to do so would mean their UK-built EVs would be hit with tariffs, making them instantly uncompetitive in their primary export market—the EU. This single issue is the most significant factor influencing investment decisions and the long-term viability of EV production in the UK.
Death by a Thousand Cuts: Friction, Paperwork, and Supply Chain Pain
Beyond the headline threat of tariffs, Brexit has introduced a significant amount of friction into the highly-integrated, just-in-time supply chains that the auto industry relies on. Before Brexit, a truck carrying car parts could move seamlessly from a supplier in Germany to a factory in Sunderland. Today, that same journey involves customs declarations, regulatory checks, and the potential for costly delays.
While large manufacturers have adapted by investing in new IT systems and customs specialists, this "death by a thousand cuts" has a real economic cost. The added administrative burden increases operational expenses and reduces the efficiency that was once a hallmark of the European auto sector. For smaller suppliers in the chain, these new complexities can be particularly challenging, adding costs that are hard to absorb. This persistent friction has made the UK a demonstrably harder place from which to serve the European market.
The Investment Question: A Chilling Effect on a Global Industry
The automotive industry operates on long-term investment cycles, with decisions on new models and factory locations planned years in advance. The uncertainty and new trade barriers introduced by Brexit have undeniably had a chilling effect on foreign investment. Global auto giants now have to weigh the benefits of manufacturing in the UK against the complexities of exporting to the EU.
While the UK has successfully secured some crucial investments in recent years—often with the help of significant government incentives—it is now competing on a different footing. It is no longer the default gateway to Europe. Major international automakers with plants across the continent are constantly evaluating the most efficient and cost-effective places to build their next-generation vehicles. The additional hurdles created by Brexit mean the business case for investing in the UK has become fundamentally more challenging to make.
The Road Ahead: A Fight for the Future
The UK's automotive industry is at a critical juncture. Its survival and future success depend on its ability to navigate the enduring complexities of its new relationship with the EU. The path forward requires two key things:
Accelerated Gigafactory Development: The race to build a domestic EV battery supply chain is paramount. Without it, the threat of 2027 tariffs looms large over the entire sector.
A Stable Policy Environment: The industry requires a clear and consistent long-term automotive strategy from the government, focusing on investment incentives, skills development, and managing the future of the UK-EU trade relationship.
The spirit of innovation and engineering excellence that defines the UK auto industry remains strong. However, years after the referendum, Brexit is not a settled issue. It is an ongoing, dynamic challenge that continues to demand resilience, adaptation, and strategic foresight from one of the nation's most vital manufacturing sectors.
