EU and UK must deepen partnership or lose ground in global automotive race, new LSE Consulting report warns

• New LSE research warns Europe’s automotive competitiveness under mounting pressure from global competition, rising costs and battery dependencies as new trade barriers loom.
• EU and UK must work together to safeguard auto industries directly employing 1.37 million in vehicle manufacturing across Europe and Britain, plus millions more across the wider sector.
• Mutual dependency laid bare as EU takes 60.4% of UK vehicle exports while 30.0% of EU exports go to the UK – the biggest buyer of EU-built electric vehicles.
• Report calls for joint action on rules of origin flexibility, UK inclusion in ‘Made in Europe’ and a shared battery supply chain roadmap, backed by cooperation on critical materials, investment and innovation.

The UK and European Union must strengthen cooperation on trade, batteries and critical raw materials to protect their automotive industries in the face of geopolitical challenges and reap the opportunity of deeper strategic cooperation, according to a new report from LSE Consulting.

The report, Strategic Cooperation: UK–EU Automotive Value Chains Amid Global Challenges, finds that the global automotive industry’s focus is shifting towards China, while manufacturers in the UK and Europe face mounting pressures from the transition to electric vehicles, geopolitical competition and rising production costs.

The research argues that, although these challenges are driven by global developments, the closely integrated EU-UK automotive relationship remains one of the most important levers available to policymakers to strengthen the industry’s competitiveness and resilience. The two markets are each other’s top automotive trading partners, and the UK is the EU’s largest parts export market, ahead of the US and China. Deeper cooperation and coordination can turn this relationship into a strategic asset to help both sides secure future investment, jobs and industrial leadership in the transition to electric vehicles.

Batteries and trade rules present urgent challenges

The report identifies dependence on batteries and critical raw materials as one of the most significant shared vulnerabilities. Despite an estimated €72 billion invested in European battery and electric vehicle manufacturing facilities since 2017, the EU still imports around two-thirds of the lithium-ion batteries it uses, while the UK has a smaller domestic battery manufacturing base.

This poses an immediate challenge ahead of changes to the rules of origin under the UK-EU Trade and Cooperation Agreement (TCA), due to take full effect on 1 January 2027. The report warns that neither side can assume it will have sufficient battery supply that meets the requirements to avoid tariffs by 2027. With the UK the EU’s largest battery electric vehicle (BEV) market, the issue should be treated as a shared challenge for both the EU and UK, with firms warning of potentially substantial additional costs if no mitigation is agreed.

A coordinated approach to industrial policy

Drawing on firm-level data covering 62 automotive business groups between 2014 and 2024, a survey of businesses across the automotive value chain, and interviews with industry executives and policymakers, the report sets out recommendations for a more coordinated UK-EU response.

The report’s recommendations include:

• Addressing the 2027 rules of origin together, including considering appropriate flexibility while developing a joint roadmap to expand battery manufacturing and supply-chain capacity.
• Recognising UK content in EU origin and include UK content and vehicles in “Made in Europe” local-content rules, helping to protect integrated supply chains and avoid displacing production to other countries.
• Providing stable, long-term investment frameworks, alongside better charging infrastructure, competitive energy costs and measures to support demand for electric vehicles.
• Strengthening cooperation on critical raw materials, research and innovation, including investment in processing, recycling and the development of more resilient supply chains.

The report argues that these measures should support the transition to lower-emission vehicles while giving manufacturers the predictability they need to invest. It also calls for closer regulatory alignment where EU-UK divergence creates additional costs without clear strategic benefits.

The report concludes that a coordinated partnership on trade, critical minerals and batteries is the clearest priority emerging from the industry’s evidence. Without greater cooperation, both markets risk becoming more dependent on external suppliers and losing ground in manufacturing and technological innovation.

The report was prepared by the Trade Policy Hub, part of LSE Consulting, for the European Automobile Manufacturers’ Association (ACEA) and the Society of Motor Manufacturers and Traders (SMMT).

Notes to editors

Strategic Cooperation: UK–EU Automotive Value Chains Amid Global Challenges was delivered by an academic team with expertise on trade, foreign direct investment, global value chains and economic security, showcasing the interdisciplinary work of the Hub.

The report combines novel quantitative analysis of 62 automotive business groups with a survey of firms and interviews with industry executives and EU and UK officials, to provide policy-relevant insights.

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