Collision Course: Under-pricing Chinese EV risks in the UK

Executive Summary

• The UK Government is currently stuck in a holding pattern. On the one hand, it appears unwilling to join its closest partners (the EU and the USA) in increasing tariffs on cheap Chinese electric vehicles. At the same time, it has failed to bring forward any alternative measures to protect jobs in the UK automotive industry.

• At the heart of this indecision appears to be an under-pricing of the economic and security risks that growing dependency on Chinese EVs presents. The UK’s domestic car industry is responsible for 198,000 British manufacturing jobs and contributes 2.5% of GDP to the UK economy.

• Excess manufacturing capacity in the PRC’s economy and EV sector - potentially five to ten million cars - will exacerbate the UK’s dependence. According to the Society of Motor Manufacturers and Traders (SMMT), Chinese-made EVs have rapidly gained ground in the last four years, with their market share in the UK jumping from 2% in 2019 to 33.4% of new EV registrations in the first half of 2023.

• Given the rapid growth of Chinese-made EVs in the UK market, there is a risk that the UK could be seen as a dumping ground and a potential backdoor into the European market. This could impact the UK’s current tariff-free access for UK EV exports to the European Single Market, becoming a thorn in the side of the new UK Government’s attempts to build closer ties with Europe. This may also be an obstacle to any green technology trade deal between the UK and USA, which aims to give UK car manufacturers access to subsidies and tax reliefs under the US Inflation Reduction Act.

• Aside from the threat to the UK’s manufacturing industry, the UK public remains largely unaware of the dependency, disruption, and data security risks Chinese EVs pose via Chinese manufactured Cellular Internet of Things Modules (CIMs) within them. 

• This paper presents a package of pragmatic policy measures for the UK Government to effectively mitigate the economic and national security risks Chinese EVs pose. Recommendations include:

  • The UK Government should formally launch its own anti-subsidies investigation into Chinese-made EVs and ensure that tariffs level the playing field and respond to unfair state subsidies.

  • The UK Government should legally require foreign EV companies from a country where the UK does not have a data standards equivalency agreement to store data on UK servers and to commit not to transfer the data overseas under any circumstances. EV companies from these countries operating in the UK should be legally required to share their source code with the UK Government and allow regular inspections of their data storage operations globally as evidence that they are not covertly transferring data to clouds or servers overseas.

  • The UK Government should introduce a legal responsibility for EV producers and EV charging producers to disclose the suppliers of key CIM components in their vehicles and outline the potential sources of vulnerabilities pertaining to each CIM component.

  • The UK Government should investigate the viability of introducing a subsidy for trusted producers to manufacture EVs or a direct subsidy for UK consumers to buy EVs.

  • Ministers should enter into talks with the USA and the EU to discuss mutual standards on data security and regulatory alignment when it comes to EVs. Cooperation and coordination on EV and CIM policies should be a part of any UK-EU Security Partnership and any discussion of a UK-USA green technology deal.