The real reason car manufacturers are still talking about Brexit

The real impact of Brexit on the UK automotive industry in 2025

It's been over nine years since the UK voted to leave the European Union, so why are we still talking about it?

Top car manufacturers continue to navigate post-Brexit rules, including trade tariffs on the sale of electric vehicles if their parts do not comply with the 'rule of origin'.

Whether or not you were Team Leave or Team Remain, it was always clear that the UK extracting itself from the EU would not be a clean-cut affair.

Trade with our international neighbours has – and continues to be – a sticking point.

For the British automotive industry, the trade tariff on electric vehicle (EV) parts imported from outside the UK may prove to be something of a stumbling block on the path to going 'green' in time for 2030.

At present, post-Brexit rules require 40% of an electric car's parts to be sourced in the UK or EU if it's to be sold on the other side of the Channel. Referred to as the 'rule of origin', failure to meet this requirement attracts a 10% trade tariff on every sale.

This requirement is expected to rise to 55% in 2027, putting further pressure on the British automotive industry's transition to clean mobility.

Why is this putting pressure on manufacturers?

The production of EVs remains challenging compared to petrol and diesel counterparts, despite significant progress.

The materials required to make batteries (and the factories themselves) are still mainly located outside of the UK, with a heavy reliance on Asian countries to fulfil this demand.

This means British car manufacturers face potential tariff barriers, unless more EV batteries are produced in the UK, or the EU rethinks its tariff rules.

With the 2030 ban on the sale of new petrol and diesel cars looming, the automotive industry continues to face significant challenges in its transition to clean mobility.

The current state of the UK automotive industry in 2025

The UK automotive sector has demonstrated remarkable resilience in difficult times.

According to the Society of Motor Manufacturers and Traders (SMMT), the industry generated almost £115 billion worth of trade in 2024 and is on track to remain above the £110 billion threshold for the third year running.

Despite this impressive figure, UK vehicle production has declined significantly.

In the first half of 2025, just 417,000 new cars and vans were built in the UK – the lowest for that period since 1953. Output for the entire year is expected to be around 755,000 vehicles, lower even than during the Covid-19 pandemic.

This production decline has been marked by several high-profile factory closures. In March 2025, Vauxhall's historic Luton plant shut down after 120 years of operation, resulting in 1,100 job losses.

The electric vehicle revolution

In a historic milestone, trade in electrified vehicles, including hybrids and battery electric vehicles, has overtaken traditional internal combustion engine (ICE) vehicles by value.

The combined value of EV imports and exports was worth more than £39 billion in 2024, exceeding the value of trade in ICE cars by more than £5.7 billion.

By mid-2025, this gap widened to £11 billion.

This shift is particularly evident in UK-EU trade. EV exports to the EU are now worth £6.3 billion, more than twice the value of ICE exports and 110% more than at the end of 2019.

However, the UK's battery electric vehicle (BEV) market is dominated by imports, with EU-made vehicles representing 64% of the UK BEV market in the year to July 2025.

The market share of UK-built BEVs has decreased from 14% in 2019 to just 0.5% of new BEV registrations as manufacturers invest in new facilities and phase out older models.

The looming 2027 challenge

The most critical challenge facing the industry is the implementation of much tougher origin rules for EVs from January 2027.

Under these rules, for a battery to be considered as originating (and thus qualifying for zero tariffs), the TCA will demand full localisation of production for finished batteries, modules, cells, and key components.

At present, meeting these requirements presents significant challenges for the industry. According to the SMMT, the industry needs to maintain and grow its domestic production capabilities to meet these stricter origin requirements.

Positive signs

It's clear that the UK government is hearing the automotive industry's concerns.

While post-Brexit rules have yet to be fully renegotiated, action is being taken to try and alleviate some of the pressure. The May 2025 UK-EU Partnership Deal represents a significant step forward, aiming to reduce trade friction across several areas.

In 2023, the UK government offered Tata, the Indian-based owner of Jaguar Land Rover, £500m in subsidies to build an electric vehicle battery plant in Somerset. This project continues to progress and will protect – and potentially create – thousands of jobs, while creating another UK-based supply of EV batteries.

Ford has also invested £380m in growing its e-motor capacity at its plant in Merseyside, which should also help reduce reliance on the import of parts and subsequent tariffs.

The UK has been successful in recent months in securing trade partnerships and agreements with important markets, joining the CPTPP, signing an FTA with India and negotiating an advantageous deal with the US.

Which is the most important global market for many companies, especially for our small volume, high value luxury and sports car manufacturers.

A viable long-term solution to decarbonising Britain's roads needs to consider how post-Brexit rules are likely to impact the industry.

So, it's a good thing we're still talking about Brexit?

We think so!

It's clear that the UK government needs to implement a clear, long-term business strategy for decarbonising the industry in a post-Brexit world to keep up with the efforts of the USA and EU.

Nine years might feel like a long time since the Brexit vote.

But our motor industry needs to work with these new rules, not against them, to successfully transition away from petrol and diesel cars by 2030.