Dealerships could face higher prices on European-built electric cars from January unless Britain and the European Union agree greater flexibility over new battery sourcing rules.
A report from LSE Consulting warns that neither the UK nor EU can assume there will be sufficient locally sourced battery capacity to satisfy tougher rules of origin taking effect on January 1, 2027.
Cars traded between Britain and the EU that fail to meet the requirements could attract a 10% tariff.
Industry body ACEA has separately estimated that 82% of EVs expected to be exported from the EU to Britain in 2027 would not comply with the planned rules.
It estimates that tariffs on those vehicles could cost manufacturers €1.47bn in 2027, potentially affecting prices, model availability and sales support.
UK is EU’s biggest EV customer
The UK is the largest export market for EU-built vehicles and battery electric cars. Almost 30% of the EU’s five million vehicle exports went to the UK in 2025, while 60.4% of vehicles exported from Britain were destined for the EU.
More than one in five EU-manufactured cars exported to Britain in 2025 was electric, representing €10.1bn of trade.
The LSE report argues that this mutual dependence makes battery sourcing and trade rules a shared problem rather than an issue either side can solve independently.
Despite an estimated €72bn invested in European battery and EV production since 2017, the EU continues to import around two-thirds of the lithium-ion batteries it uses. Britain has an even smaller domestic battery manufacturing base.
Report calls for rule flexibility
The report recommends temporary flexibility around the 2027 rules while the UK and EU develop a joint roadmap for battery manufacturing and supply chain capacity.
It also calls for vehicles, parts and materials made in the UK to qualify under proposed “Made in Europe” local-content rules.
Other recommendations include closer cooperation on critical raw materials, battery recycling, research and investment alongside more stable industrial policies, lower energy costs and stronger charging infrastructure.
Mike Hawes, chief executive of the SMMT, said: “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.”
Europe loses manufacturing ground
The research analysed 62 manufacturers accounting for at least 95% of registrations across the EU, European Free Trade Association and UK.
It found that the businesses studied lost more than 300,000 European and UK vehicle-manufacturing jobs between 2015-16 and 2023-24 while China gained around 350,000 over the same period.
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