Europe’s car industry faces a new trade barrier, with UK cooperation offering a solution

The English Channel does not divide supply chains

The analysis by LSE Consulting combines data from 62 automotive groups covering 2014 to 2024, a business survey and interviews with industry leaders and policymakers.

Trade figures show why protecting the domestic market alone is not enough. The European Union receives 60.4% of UK vehicle exports, while 30.0% of EU vehicle exports go to the United Kingdom. The UK is also the largest export market for battery-electric vehicles manufactured in the EU.

The ties are strong in components, too: the United Kingdom is the EU’s largest export market for automotive parts, ahead of the US and China. New barriers therefore affect not only vehicle factories but also their suppliers. Vehicle manufacturing in the EU and the United Kingdom directly employs a combined 1.37 million people.

• Trade: the EU receives 60.4% of UK vehicle exports; 30.0% of EU vehicle exports go to the United Kingdom.

• Battery dependence: the EU imports roughly two-thirds of the lithium-ion batteries it uses.

• Investment: an estimated €72 billion has gone into European battery and electric vehicle production facilities since 2017.

• Key date: the trade agreement’s new rules of origin are due to take full effect on 1 January 2027.

• Study basis: data from 62 automotive groups covering 2014 to 2024, a business survey and interviews.

Batteries will be the test in 2027

The new rules of origin under the EU–UK Trade and Cooperation Agreement are due to take full effect on 1 January 2027. The study warns that neither side can count on a sufficient supply of compliant batteries by then. If batteries meeting the origin requirements are in short supply, vehicle trade faces tariffs and businesses face substantial additional costs.

Investment has not yet eliminated this dependence. An estimated €72 billion has gone into European battery and electric vehicle production facilities since 2017, but the EU still imports roughly two-thirds of the lithium-ion batteries it uses. The United Kingdom’s domestic battery manufacturing base is smaller.

This makes rules of origin more than a matter of customs clearance. For a European manufacturer, what matters is not only whether a battery is available but also whether it meets the trade agreement’s requirements. The importance of the UK market to EU electric vehicle exports makes battery shortages a shared concern for both sides.

A joint battery production plan and more flexible rules

The study recommends addressing the 2027 rules of origin jointly and considering appropriate flexibility in their implementation. This should be accompanied by a joint action plan to expand battery production and supply chain capacity.

Another important proposal concerns “Made in Europe” local content requirements. The authors recommend including UK components and vehicles in these requirements and recognising British content in EU origin calculations. The aim is to preserve existing supply chains and prevent production from moving to other countries.

The recommendations also include stable long-term investment conditions, better charging infrastructure, competitive energy prices and measures to support demand for electric vehicles. For critical raw materials, the study identifies a need for joint work on processing, recycling, research and innovation.

Europe’s competitiveness also depends on its neighbour

According to the study, the centre of gravity of the global automotive industry is shifting towards China, while European and British manufacturers face pressure from the transition to electric vehicles, rising production costs and geopolitical competition. The authors also recommend closer regulatory alignment where differences create additional costs without a clear strategic benefit.

For Europe, the report’s message is practical: closely interconnected markets need coordinated industrial policy. Investment in new factories alone is not enough if trade rules and supply chain development move at different speeds.

These are recommendations from a study, not agreed policy changes. The source material does not confirm any further easing of the rules of origin or the United Kingdom’s inclusion in “Made in Europe” measures.