The U.K. government is lobbying the European Union to delay Brexit-related local manufacturing requirements after the maker of Vauxhall and Peugeot cars warned the rules may lead to factory closures.

Stellantis NV, which is re-tooling its Ellesmere Port site to make electric vans, said it’s unable to meet local content requirements because of rising raw-material prices and a lack of U.K. battery supplies. Japan’s Nissan Motor Co. said assembling cars in Britain is at risk of becoming too expensive after the rules take effect in 2024.

“If the cost of EV manufacturing in the U.K. becomes uncompetitive and unsustainable, operations will close,” Stellantis said in a written submission to Parliament’s business committee. “The U.K. must consider its trading arrangements with Europe.”

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The government of Prime Minister Rishi Sunak has included removing the so-called cliff edge on rules of origin for battery manufacturing among its priorities in recent talks with Brussels, according to people familiar with the matter. The rules stipulate that 45% of an electric vehicle’s value must be sourced in the U.K. or Europe from 2024 to avoid export tariffs of 10% — a burden for U.K. automakers selling cars abroad.

The trading arrangements are just one of a growing list of challenges facing the auto industry in the U.K., where vehicle output shrank almost 10% in 2022. The country has been struggling to attract significant auto-industry investment in the aftermath of Brexit, while several manufacturers have shifted output to other places.

BMW, in 2022, said it will move production of electric Mini hatchbacks from Oxford, England, to China. Honda Motor Co. closed its car factory in Swindon in 2021, leaving Britain with just four major manufacturers: Jaguar Land Rover, Nissan Motor Co., BMW and Toyota Motor Corp.

U.S. Incentives

Meanwhile, incentives in U.S. President Joe Biden’s Inflation Reduction Act have attracted manufacturers across the world to invest in North American production of technologies related to the transition to sustainable energy, including electric vehicles.

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Efforts to establish a domestic battery supply chain in the U.K. have largely foundered, with local hopeful Britishvolt Ltd. entering administration. Carmakers prefer to have cell factories close to their vehicle assembly plants to keep costs in check.

Stellantis said the origin requirements should be pushed back to 2027. Renault SA in its submission suggested the U.K. introduce more attractive incentives for EV purchasing, including interest-free funding. Nissan cited headwinds including supply-chain bottlenecks and rising energy costs.

“The U.K. must, therefore, continually prove that it is a strong destination for both vehicle and battery manufacturing,” Nissan said in its written submission. “Government can support this with a competitive business environment, a clear industrial strategy, continued investment in R&D and facilitating access to critical raw materials.”

Canada, Spain

The U.K.-EU discussions are being led by Business Secretary Kemi Badenoch, along with Chancellor of the Exchequer Jeremy Hunt, the people said.

“Shocks to global supply chains have had significant impacts on both UK and EU manufacturers,” the U.K. government said in a statement. “The business and trade secretary has raised this with the EU and is determined to find a joint U.K.-EU solution, which ensures the U.K. remains one of the best locations in the world for automotive manufacturing.”

Bentley Motors Ltd. Chief Executive Officer Adrian Hallmark recently said it’s “concerning” that companies including Volkswagen AG have picked the likes of Canada and Spain over the U.K. for battery plants.

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On May 17, Hunt acknowledged the “reality” that there was a shortage of batteries for electric vehicles and said the U.K. was focused on securing manufacturing capacity. “Watch this space,” he said during a fireside chat at the British Chambers of Commerce annual conference.

Stellantis employs roughly 5,000 people in the U.K., including at Ellesmere Port and Luton, where the company produces mid-sized Vauxhall, Citroen, Peugeot, Opel and Fiat vans. Nissan said recently it’s in talks with the U.K. government about making additional investments in its Sunderland plant.