U.K. Carmakers Face Big Gaps in Post-Brexit Supply Chain

British carmakers say the U.K.’s decision to leave the EU will threaten the more than 50% of their vehicles’ content that comes from outside the country, the Financial Times points out.

Without the free trade benefits of EU membership, carmakers could end up paying roughly 5% tariffs on foreign-sourced parts. At the moment, there is little or no local capacity to make many of those components, according to the industry.

More important, launching domestic parts manufacturing may not help, because the local market won’t be large enough to make the business viable. Simply paying the tariffs would push up the price of British cars and make them less competitive overseas.

At stake are some 800,000 auto industry-related jobs in the U.K, including 170,000 direct manufacturing positions. The Society of Motor Manufacturers and Traders has estimated that car production in the U.K. will drop by 10% without an interim agreement to preserve the country’s tariff-free status during negotiations about post-Brexit trade.

FT says investment in the U.K.’s auto sector fell 30% to £1.7 billion ($2.2 billion) last year and shrank to about £320 million ($420 million) in the first half of 2018.