Carmakers and consumers in the UK and the EU will avoid up to £4.3 billion ($5.47 billion) in additional costs thanks to the extension of tariff-free trade for electric vehicles, according to Downing Street.

The long-awaited deal to delay the introduction of new rules of origin for electric vehicles, from 1 January 2024 to 1 January 2027, was announced on 21 December. Without the extension, the rules under the existing trade and cooperation agreement (TCA), reached after Brexit, would mean a 10% tariff on EVs traded on either side of the pond.

“We listened to the concerns of the sector and worked hard with counterparts in Brussels and across Europe to deliver a solution that works for both sides,” said UK Prime Minister Rishi Sunak, suggesting the agreement comes from a “more constructive relationship” with the EU.

The UK will now look to extend the equivalent rules of origin in the UK-Turkey preferential trade agreement to ensure the existing rules last for a further three years, until the end of 2026. This will be a further boost for UK car companies that are major exporters to the Turkish market, such as Ford.

Mike Hawes, ceo of UK automotive trade body SMMT, says the deferral is “a win for motorists, the economy and the environment. Maintaining tariff-free trade in EVs will ensure consumers retain the widest and most affordable choice of models.”

Sigrid de Vries, director general of the European automotive association ACEA, welcomed the deal saying it provides much-needed certainty to Europe’s growing EV battery supply chain. “Instead of penalising green industries, the decision is recognition that it takes time to build up emerging value chains. It is also a strong signal that the EU is willing to uphold the competitiveness of its critical industries,” she adds.

According to ACEA, the deal has potentially avoided €4.3 billion ($4.74 billion) in tariff costs and saved some 480,000 units of EV production.

Ford, Stellantis and BWM Group have also separately welcomed the move.

Lisa Brankin, chair of Ford Britain, has thanked policymakers in London and Brussels for listening to and engaging with a “united” automotive industry. The decision “will protect jobs, support countless investments and most-importantly help to keep costs down for consumers and businesses on their journey to an all-electric future,” she adds.

Stellantis, which has previously warned such tariffs could jeopardise its UK manufacturing, said it can now focus on its planned acceleration towards electrification. The carmaker, owner of brands like Vauxhall in the UK, has recently started producing electric vans in the northwest of England.

“This planning certainty will allow the BMW Group to enhance its manufacturing and sales footprint in this highly competitive market,” the German carmaker, owner of MINI, said in a statement. The company is to build its next-generation electric MINI in Oxford, after shifting EV production from the UK to China and Germany earlier this year.

From January 2027, zero-tariff trade will only be applicable if 45% of the value of an electric vehicle and 60% of the battery pack have originated in the UK or EU.