Verónica Castro-AllendeJon Lawes, managing director at MHC Mobility, investigates the implications of the EU Rules of Origin tariff delay for the present and potential landscape of Europe’s EV transition.
The auto industry and proponents of the transition will both be celebrating the deal that policymakers brokered in the last few days of 2023 to delay coming Rules of Origin tariffs by three years.
If the trade regulations had been in effect this month, they would have put in place regional sourcing quotas that would affect EV production on both sides of the Channel. This was commonly anticipated to drive up costs, dent consumer appetite for EVs, and complicate the path to net zero for commercial fleets given the embryonic state of Europe’s battery supply chain, which is eclipsed by its counterparts in China.
Unquestionably, the EV switch has been given a lifeline by the eleventh-hour delay to Rules of Origin tariffs. But the journey of change is far from over. The delay in tariffs is a necessary but insufficient prerequisite for the transition to zero-emission vehicles to be successful, and presently the actual work must resume.
Adjusting a gear
The main challenge facing Europe’s fleet is maintaining confidence in EV adoption.
Last year saw significant growth in the number of EVs on European roads, with a 37% increase starting in 2022. However, battery EVs still only account for 14.6% of the continent’s total fleet, serving as a reminder of how far new internal combustion engines ( ICE ) still have to go before they are phased out in 2035.
A gap still exists between various EU member states, but there has been a break between the business fleet and weaker secret buyer adoption. Compared to their northern neighbors Italy, Spain, France, and Germany, Central and eastern European nations are many further behind the Electric curve.
The secret to overcoming this will be confidence. Ending this charge point lottery will be crucial for overcoming range anxiety and accelerating adoption outside of the country because more than a third of EV charging infrastructure is concentrated in only two member states.
Territorial adoption also closely relates to local incentive programs like tax subsidies, which not only provide a fiscal boost but also signal long-term government alignment with the EV transition.
These policies do exist, but they vary from nation to nation, so they need to be made more persistently alluring in order to replicate early corporate fleet success stories and convince people that electric vehicles are the best option.
Local policymakers struggle with the decision of whether to invest now or wait for higher Electric demand as a result of all of this. The appearance of choice, however, is deceptive.
Governments need to cultivate EV confidence today, especially in light of the policy uncertainty of upcoming elections, as the 2035 ICE deadline is drawing near.
Rules of Origin Countdown to 2027
The debacle involving the Rules of Origin likewise brought to light how far behind in the world race for battery technology Europe Europe has lagged.
With recent reports that it has ousted Japan as the top vehicle exporting country in 2023 and that sales of Chinese automaker BYD have surpassed those of its rival electric car manufacturer Tesla, China has established itself as an unquestioned leader.
This is significant because there will be no more setbacks after the pause on Rules of Origin tariffs expires in 2027. So, the mechanical sector on the continent needs to step up its supply chain and ensure that domestic BEV technology is stronger three years from now, with a reduced reliance on Chinese battery producers, or else it could soon experience another cliff-edge moment.
Parallel to this, the development of Chinese EVs emphasizes the need for Western automakers to maintain their competitive edge. The EU started looking into the effects of less expensive Chinese OEMs on the continent’s market next year. The worry is understandable, but many EV transition participants will be happy with the additional options and competitive price points provided by Chinese electric vehicles (EVs).
What steps policymakers take is still up in the air. However, it serves as a pleasant reminder that the EV transition and the steep battle the continent’s manufacturers are facing are likely to benefit from better value for drivers.
The path in front
These are just a few of the difficulties that the net-zero mobility agenda still faces. After a year of “greenlash,” important elections are about to take place. The role of Taiwanese OEMs in the mix of energy fleets will continue to be impacted by the EV trade war. Severe weather conditions are also good to just worsen.
Policymakers on both sides of the Channel may be happy and rational about delaying the implementation of Rules of Origin tariffs, but this cannot hide the difficult journey back for the fleet. It’s time to move forward.
