SMMT has warned that urgent action is needed to protect UK automotive manufacturing as zero emission vehicle targets, European trade rules, energy costs, and employment costs continue to shape investment decisions.
The Society of Motor Manufacturers and Traders issued the warning alongside its latest State of the Automotive Nation report, arguing that growth depends on a more workable transition to zero emission vehicles, a settlement on UK-EU automotive trade, and lower underlying business costs for vehicle and component manufacturers.
The trade body says the UK automotive industry supports 188,000 manufacturing jobs and remains one of the country’s most important high-value industrial sectors. It also handles more than £110bn in imports and exports, leaving the sector heavily exposed to the rules governing cross-border movement of finished vehicles, batteries, and components.
The immediate trade concern is the interaction between EU proposals on “Made in Europe” rules and tougher rules of origin due under the UK-EU Trade and Cooperation Agreement. Without a negotiated solution, SMMT says around 70% of battery electric and plug-in hybrid vehicles traded across the Channel could face a 10% tariff from January 2027.
The organisation estimates that this would create a tariff bill of about £1.4bn in 2027 and put £16.4bn of UK-EU electric and plug-in hybrid vehicle trade at risk. Such a burden would land while manufacturers are already funding new platforms, battery integration, power electronics, software, charging interfaces, and plant conversion.
Mike Hawes, chief executive of SMMT, said: “Reforming the ZEV mandate is not about weakening ambition; it is about making the transition achievable.”
Vehicle manufacturers have committed significant investment to zero emission technologies, but the trade body argues that the current mandate is moving ahead of market demand. Where consumer uptake does not keep pace, manufacturers can be pushed toward discounting, credit strategies, model mix adjustments, or production decisions that weaken margins and complicate factory planning.
The UK also competes for model allocation against plants in Europe, Asia, and North America, many of which operate with lower industrial energy costs, larger domestic markets, or more direct state support. Recent measures, including DRIVE35 funding and action on electricity costs, have been welcomed by industry, although companies still need long-term certainty before committing capital to tooling, factory upgrades, and supply chain localisation.
Electric vehicle manufacturing changes the structure of the supply base as well as the drivetrain. Batteries, drive units, motors, power electronics, software, thermal systems, castings, wiring, and lightweight materials carry different manufacturing requirements from internal combustion engine platforms. Holding assembly work in the UK will increasingly depend on whether the surrounding component base develops at sufficient depth.
European competitors are already industrialising parts of that transition. Mercedes-Benz’s move to produce axial flux motors at Berlin-Marienfelde demonstrates how electrification is becoming a manufacturing discipline involving advanced joining, automated process control, and AI-based inspection. The same shift is pulling more value into electric powertrains, electronics, software, and high-precision manufacturing.
The UK has strong assets in high-value engineering, design, motorsport, specialist vehicles, power electronics, and advanced materials. Those strengths can support the transition, but they do not remove the need for competitive production conditions. Automotive plants are capital-intensive and operate on long model cycles, which means uncertainty around tariffs, energy, regulation, and demand can affect decisions years before a vehicle reaches production.
The ZEV Mandate adds operational pressure because compliance is tied to sales mix rather than factory readiness alone. If charging infrastructure, vehicle pricing, finance, insurance, and residual values do not move in line with the mandate, manufacturers are left managing the gap through commercial mechanisms that do little to improve plant productivity.
German automotive manufacturers are already under pressure as electrification costs, software development, Chinese competition, and tariffs reshape the market. The same pressures are visible across Europe, where production decisions are increasingly influenced by the combined strength of industrial policy, energy markets, component supply, and consumer demand.
UK automotive now needs conditions that match the scale of the transition. Predictable trade access, competitive power costs, workable regulation, skilled labour, and domestic supply chain depth will decide whether zero emission vehicle production remains a national manufacturing strength or becomes another area where design, branding, and sales remain local while volume production moves elsewhere.
