The Automotive Industry & Customs

Automotive supply chains can involve thousands of customs decisions, each one capable of generating unnecessary duty costs if not managed with precision.

Contents:

• The scale of automotive customs complexity
• Where automotive supply chains accumulate unnecessary costs
• A trade environment that is shifting fast
• Electric vehicles and the origin rules that follow
• Why this matters for your business
• How Customs Support Group can help you
• Learn from our experts for free

The Scale of Automotive Customs Complexity

The automotive industry’s relationship with customs extends well beyond the movement of finished vehicles, with the largest part of customs management addressing what happens before assembly:

• Components arriving from multiple origins
• Parts at different stages of manufacture
• Using special procedures to minimise import duty

Every decision can impact not only the finished units crossing borders, but also another part of the production line. For example, changing commodity codes can impact the rules for applying preferential origin and special procedures like inward processing to the next phase.

At each stage, there must be forward consideration for conditions that vary by market and trade agreement. Across thousands of SKUs across multiple territories and end destinations, this complexity compounds.

All told, a single line could have 1000s of variables to contend with, and it’s not easy to do well. Without an experienced customs consultant working to optimise your supply chain, the little costs can soon add up for you and for your customers.

(Related: Automotive Import Costs Explained: How Customs Value, Duty, and Tax Add Up)

Where Automotive Supply Chains Accumulate Unnecessary Costs

One of the most common patterns CSG observes when beginning work with a new automotive client is an over-reliance on distribution partners for customs decisions.

Logistics providers manage border movements, but they rarely possess the in-depth procedure knowledge needed to identify where import duty can be suspended, reduced, or recovered.

A further issue is partial implementation. CSG regularly encounters businesses where an Inward Processing Relief (IPR) authorisation has been applied in one country but not across other manufacturing sites where it would equally apply.

The result is full duty applied to components that qualify for suspension – a cost that has been running, undetected, for months or years.

Businesses operating multiple sites on different inventory systems face a related challenge. Without integrated data, there is no visibility across the full SKU base – and no way to apply customs classification or origin decisions consistently across the operation.

A Trade Environment That Is Shifting Fast

The customs cost of an automotive supply chain is not fixed. Procurement decisions, disruption, and regulations are constantly changing.

Three major trade agreements were concluded between mid-2025 and early 2026, each carrying substantial implications for duty rates on vehicles, parts, and sub-assemblies.

The EU–India Free Trade Agreement

Concluded in January 2026, this FTA reduces import duty on EU-manufactured vehicles from up to 110% to approximately 35% in the first year.

A staged reduction brings this to 10% over the full transition period, within a quota of up to 250,000 vehicles per year. Completely knocked-down (CKD) kits qualify for a separate reduction from 16.5% to 8.25%, within a 75,000-unit quota.

The UK–India Free Trade Agreement

Finalised in May 2025, this FTA follows a similar structure. Tariffs on UK-manufactured vehicles entering India fall from over 100% to 10% under a managed quota.

The UK Government estimates this reduces duties on UK exports by up to £400 million per year at entry into force – rising to £900 million after 10 years.

At the same time, India’s annual vehicle market exceeds four million units, with growth projected across both passenger and commercial segments.

The EU–Mercosur Partnership Agreement

Signed in January 2026, this agreement creates another preferential corridor. Mercosur countries currently apply duties of up to 35% on imported vehicles.

Under the agreement, passenger car tariffs phase to zero over 15 years, with a transitional quota of 50,000 units at half the base tariff rate during the first seven years.

The European Commission projects a threefold increase in EU automotive exports to the Mercosur region by 2040.

The US tariff environment adds further complexity.

Since 2025, the estimated impact of US trade measures on the automotive sector has reached approximately $35 billion.

Vehicles entering the US from the EU attract a 15% tariff. Goods from Canada and Mexico may face up to 25% on non-US-origin content, whilst a 50% tariff on steel and aluminium continues to affect materials costs across the sector.

Every customs decision in an automotive supply chain needs to consider not only the impact on the import clearance at the desired destination, but also how it affects contingencies if that market suddenly becomes less viable. If you could use specialist guidance on how to approach this, contact us today.

(Related: New FTAs Are Reshaping Automotive Landed Costs – and Many Importers Are Not Ready)

Electric Vehicles and the Origin Rules That Follow

The transition from internal combustion engines to electric drivetrains is not only an engineering change. It introduces a different classification structure, a different rulebook for origin determination, and regulatory requirements that do not apply to conventional vehicles.

From the 1^st of January 2027, the maximum non-originating materials (MaxNOM) allowed in a finished battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV) under the EU–UK Trade and Cooperation Agreement drops from 60% to 45% of the ex-works (EXW) value.

This is not only a vehicle-level threshold; the battery pack must also meet a separate origin condition. And, from 2027, the change of tariff heading route that allowed non-originating cathode active material (CAM) as a path to origin is explicitly closed.

The EU Battery Regulation adds a further compliance layer from 2027. All EV batteries will require a Digital Product Passport – a digital record covering carbon footprint, recycled content, and supply chain provenance.

Minimum recycled content levels for lithium, nickel, cobalt, and lead become compulsory at the same time. A battery that meets origin thresholds but fails the regulatory requirements will still be blocked — both conditions apply.

(Related: Sustainability Regulations Highlight How Proper Due Diligence is the Backbone of EU Compliance)

Why This Matters for Your Business

Wasted spend compounds across your automotive supply chain. The difference between paying full duty and qualifying for a preferential rate on a single trade lane – across thousands of units – can determine whether that lane is viable for the long term or not.

Businesses that rely on distribution partners for customs decisions rather than structured compliance are absorbing costs that a properly managed supply chain would eliminate.

In an industry where an estimated $35 billion in US tariff exposure has accumulated since 2025, the gap between reactive and proactive customs management is widening.

For manufacturers sourcing electric vehicles for the EU–UK corridor, the window to restructure battery supply ahead of the 2027 MaxNOM threshold change is closing.

No further extension to those origin rules is available. Businesses that have not validated their cathode material sourcing will face a 10% tariff that was not part of their original cost model.

The customs variables across automotive supply chains are significant in number but manageable in practice. The question is whether they are being actively governed, or left to accumulate costs in the background.

How Customs Support Group Can Help You

Customs Support Group provides:

• Goods classification and origin determination: commodity code confirmation, preferential origin verification, and duty rate analysis for automotive parts, sub-assemblies, and finished vehicles
• Inward and Outward Processing Relief compliance: IPR and OPR authorisation, administration, and optimisation across manufacturing sites
• FTA eligibility assessment: origin verification and supplier declaration management across EU–India, UK–India, EU–Mercosur, and EU–UK trade corridors
• EV origin compliance: EU–UK TCA rules for battery electric vehicles and plug-in hybrids, including cathode material sourcing review ahead of the 2027 threshold changes
• Digital integration: EDI connections, master data management, and customs process integration across multiple sites and inventory systems

It all begins with a customs compliance scan, where our experts assess your operation and return actionable insights. Contact us today to begin safeguarding your supply chain compliance.