Carmakers and battery producers in the UK are set to miss out from a new agreement by Rishi Sunak and Joe Biden that their countries work together on electric vehicle supply chains, according to trade experts and official documents.
As part of the “Atlantic declaration” announced in Washington on Thursday, the US and UK will work towards a deal allowing critical minerals, such as lithium, that are mined or processed in the UK to count towards “local content” requirements for battery vehicles made in the US.
Under the Inflation Reduction Act, consumers buying an electric vehicle can claim $7,500 in tax credits if the vehicle is assembled in North America, and if enough of its parts come from within the region.
The UK-US negotiations will focus on allowing UK minerals to receive tax credits when featured in American-built vehicles.
The US is holding similar talks with Europe, Japan and South Korea over trading arrangements, as part of its efforts to bolster electric vehicle supply chains that do not rely on China.
But UK negotiators are hoping to push for a more ambitious definition that would allow electric cars built in the UK and exported to the US to receive some tax credits, on the grounds that they contain minerals that qualify for the credits.
However, under the current UK-US proposed arrangements outlined on Thursday, carmakers such as Jaguar Land Rover and battery manufacturers like China’s Envision, which produces batteries at Sunderland, will not be able to qualify for the benefits, according to several trade experts who have scrutinised the plans.
This is because the batteries and vehicles still have to be assembled in North America to qualify for the tax credits, the people said.
A government spokesman said: “The Atlantic Declaration is set to deliver several benefits to UK auto manufacturers. As well as deepening our collaboration in emerging technologies that are essential for the development of our automotive sector, the critical minerals agreement will help grow our domestic critical minerals sector, which in turn will strengthen the UK’s electric vehicle industry.”
Mike Hawes, boss of the Society of Motor Manufacturers and Traders, which represents the UK car industry, said: “Britain can only benefit from such a deal if we seize the window of opportunity to increase our critical mineral production, build our own battery capability and supply [materials for] US automotive production.”
While the UK is able to make “almost every component theoretically needed to build an EV”, the country “currently lacks significant critical mineral refining capability”, he added.
The declaration, published on Friday, states that the two countries will “begin negotiations on a targeted critical minerals agreement covering the five relevant critical minerals most important for electric vehicles — cobalt, graphite, lithium, manganese and nickel”.
If these are “extracted or processed in the United Kingdom” they will “count toward sourcing requirements for clean vehicles eligible for the Section 30D clean vehicle tax credit of the Inflation Reduction Act,” it adds.
Jeff Townsend, founder of the Critical Minerals Association, said the accord “has the potential to revolutionise the UK’s critical minerals sector”. Creating alternative supply chains needed closer global co-operation and the bilateral deal “will become a hugely important part of the solution”, he said.
The declaration covers sectors from technology and defence to future regulation of AI. It is an attempt by the two countries to work closer together on important areas while stopping short of an official UK-US trade deal.
The declaration was welcomed by business leaders but executives said more detail was needed.
“We need both governments now to turn words into action and follow through on delivering the commitments in the declaration,” said Julian David, chief executive of the TechUK trade association.
The agreement includes a “data bridge” for smaller companies to reduce the red tape they face when moving data across the Atlantic. Tina McKenzie, policy chair of the Federation of Small Businesses, said this would be a “practical boost to digital and service exports”.
Defence industry executives also broadly welcomed the announcement but said more details were needed to understand how it would work in practice and which companies would benefit. BAE Systems and Rolls-Royce operate US subsidiaries that already allow them to work on sensitive US defence programmes.
The agreement includes an intention to try to end Russia’s dominance in supply chains for nuclear fuel and to develop advanced nuclear technologies, including small-modular reactors.
One industry figure said it “sets a very positive context for discussions that are likely to be had over the course of the year”.
Carol Tansley of X-energy, a private US advanced nuclear developer, said: “There’s always been strong US-UK links in the nuclear sector. Strategic co-operation is now more important than ever, given the need to deliver secure clean power on both sides of the Atlantic, and the huge economic opportunities that go with it.”
Additional reporting by Sylvia Pfeifer, Rachel Millard, Peter Foster and Harry Dempsey