NAA Member News: Brabners – “Made in Europe”; preparing for the EU’s proposed industrial policy
Michael Winder, partner in Brabners’ commercial team, discusses the importance of proactivity for automotive businesses preparing for the EU’s new local content requirements under the Industrial Accelerator Act.
As conversations around the EU’s proposed “Made in Europe” scheme gain momentum, UK automotive businesses will need to remain up to speed on developments.
The proposals could link certain public procurement opportunities and regulatory incentives to local manufacturing and content requirements. For the automotive sector, this could affect how EVs and key components are assessed where supply chains stretch across the UK, EU and wider international markets.
In practice, the current draft would prevent British-built vehicles from accessing the same incentives as EU-built vehicles, such as contracts awarded by EU public bodies and direct government purchasing grants. For instance, they could lose support for greener corporate fleets and CO2 super-credits, as well as the exclusion of British vehicles from EU member state public procurement tendering opportunities.
The government has signalled that it would be keen for the UK to be included in the scheme because of the potential competitive disadvantage it poses to our exports. Likewise, it is understood that the EU’s car industry has called for the UK to be included to prevent disruption to its supply chains.
Although the framework is still in development, businesses should review their exposure now and enlist the right support should challenges arise.
Rules of origin and content requirements
One of the primary areas of change to monitor as the new legislation is implemented is the rules surrounding origin and content requirement. This sits within the Trade and Co-Operation Agreement between the EU and the UK rather than the proposal, but it feeds into the direction of travel for the ‘Made in Europe’ legislation.
Zero tariffs currently apply to EV trade between the UK and EU. However, these rules are set to change.
According to the drafted rules, from January 2027, as is already the case for standard petrol and diesel cars or vans, 55% of an EV’s ex works value must originate from either the UK or EU. Furthermore, for EVs the Battery packs must meet a 70% originating-content requirement, and, for battery cells, the threshold will be set at 65%. If the EVs being traded fail to meet these three requirements, a 10% tariff will be incurred.
Businesses would be wise to audit their product composition now to clarify whether their UK-manufactured vehicles qualify under the thresholds or may face tariffs when exporting to EU markets.
Ownership and investment transparency
In the interest of protecting and strengthening the European car market, UK automotive businesses may be required to be more transparent about their ownership and investment under the proposed regulatory regime.
The criteria established under the draft Industrial Accelerator Act grant national investment authorities the power to impose strict conditions and veto investments by non-EU entities in strategic sectors. Battery technology and EV manufacturing are the areas most likely to feel the impact of this change, if investment exceeds specific ownership thresholds.
UK automotive businesses with ownership or investment external to the EU may be required to transparently disclose ownership structures. Mapping ownership structures now will leave automotive businesses well-placed to detect potential barriers and resolve any issues in advance.
Public procurement and support schemes
Adjustments to EU content requirements in the scheme may also affect access to contracts and subsidies.
Unless the UK can secure equivalent treatment in the final legislation, UK manufacturers may struggle to access EU fleet electrification incentives, which involve a mixture of tax advantages and local grants, and they will no longer receive CO2 super-credits, which allow manufacturers to count zero- and low-emission vehicles as more than one car or van when calculating their fleetwide average CO2 emissions.
The Industrial Accelerator Act is currently at the proposal stage. It still has to proceed through the EU’s ordinary legislative procedures, which means that it will be subject to negotiation and approval by the European Parliament as well as the Council of the European Union. This will likely result in further amendments. This does not mean UK businesses should ignore this proposal. Instead, manufacturers should monitor legislative developments closely and begin to consider their exposure to the changes this proposal could bring.
Mapping which businesses currently access EU subsidies, R&D funding or public procurement opportunities will assist in identifying which parts of cross-border operations are most vulnerable to local-content restrictions. It will also ensure that businesses don’t unexpectedly lose access to critical aid and may help to identify alternative support mechanisms or partnerships to maintain competitiveness.
Firms need to be in a position to provide a bill of materials, production logs, local content threshold verification, official plant certification as well as Binding Origin Rulings and low-carbon material certificates to assess whether they will remain eligible under the new rules.
Supply chain flexibility
Given the current uncertainty around the proposed framework, maintaining a level of flexibility is key. Supply chain resilience built during the pandemic and other adverse geopolitical climates should aid this process.
In the absence of clear guidance, good business practice looks like building relationships with alternative suppliers and reviewing existing supply agreements for adaptation clauses to allow automotive businesses to respond quickly. This will be integral to dealing with changes in sourcing requirements, eligibility rules or tariff treatment.
The manufacturers that understand these changes earliest will navigate them most effectively.
At Brabners, we’re helping automotive businesses deal with these issues before they arise by providing expert support where needed; through mapping exposure across supply chains and ownership structure, Brabners can help businesses prepare strategically now before the legislation is finalised.
To discuss how Brabners can support your business, contact Michael Winder at michael.winder@brabners.com.
