POLITICO — 2026-01-14
Automotive Industry
Britain’s transport ministry has rejected an auto industry push to make it easier for electric vehicles manufactured in China to qualify for U.K. taxpayer subsidies, according to official correspondence obtained by POLITICO.
While other Western nations have imposed punitive tariffs on Chinese electric carmakers, the U.K. has become a crucial and growing market for BYD and other major Chinese brands.
But despite industry pressure, British ministers are holding fast to rules that bar Chinese carmakers and Western manufacturers from public money if their supply chains tie back to China.
The Department for Transport (DfT) has recently concluded that three emission reporting schemes that could be met by Chinese-made vehicles “are not compatible” with the principles ministers have set out to subsidize EVs with taxpayer cash, according to an email from a DfT official to Honda seen by POLITICO.
The decision comes as Prime Minister Keir Starmer prepares to jet out to China later this month, where he is likely to pitch the country’s investors to set up factories in the U.K. — as European governments drive firms to shift their supply chains away from China.
While a relaxation of the subsidy rules is backed by some U.K. carmakers, it is not universally popular.
“It would be unwise for ministers to water down the scheme for legacy automotive companies that continue to double down on their supply chain in China, rather than consider relocating their supply chain to Europe,” said Sam Goodman, senior policy director at the hawkish China Strategic Risks Institute.
The move would have “[opened] the door to allow Chinese EV producers who already receive generous subsidies and in many cases are Chinese state-owned to gain access to U.K. taxpayer money,” Goodman warned.
Chinese brands have rapidly grown their market share in the U.K., with several model launches in 2025 as BYD overtook Tesla to become the world's largest EV maker.
Under review
Since last August, carmakers have been able to apply for up to £3,750 per vehicle in subsidies under the U.K.’s Electric Car Grant for vehicles priced under £37,000.
The subsidies are meant to spur more consumers to switch to EVs. Yet Transport Minister Lilian Greenwood said last summer that she did not expect any cars assembled in China to be eligible for the cash.
Following his visit to Beijing last September, Trade Secretary Peter Kyle said the government has “been looking at where we know there is interest in investment in the automotive sector here in the U.K.”
The government will only give out cash to automakers if they prove the carbon emissions of a vehicle's manufacturing meet the standards of the U.N. and NGO-led Science Based Targets Initiative (SBTi). To qualify for the grant under the rules, vehicle assembly and battery cell production must meet emissions-intensity thresholds derived from the International Energy Agency (IEA).
“This effectively excludes China because of its aggregate grid profile, rather than any lack of firm-level capability. That outcome is a feature — not a bug — of U.K. industrial policy,” said Gregor Sebastian, associate director of Rhodium Group's China Corporate Advisory team.
But in an Oct. 2 letter, Transport Minister Keir Mather told Honda that government officials were reviewing “the suitability” of the three alternate manufacturing standards schemes, at the carmaker’s request.
These could allow Chinese-made vehicles to qualify for subsidies. The U.K.’s Society of Motor Manufacturers and Traders (SMMT) auto lobby has pushed the government to “consider alternative standards regimes” to measure manufacturing emissions.
Locked out
The Department for Transport review has now rejected firms from applying for grants using the Taskforce on Climate-related Financial Disclosures, the International Sustainability Standards Board and the Corporate Sustainability Reporting Directive.
“This is because TCFD, IFRS, and CSRD are disclosure standards that do not receive independent assessment, which means that there is no independent test of the level of ambition in respect of sustainability,” the official told Honda.
Automotive firms argue that this bars those who source their batteries from China, or make their vehicles there, from getting the grants.
The requirements are designed to encourage sustainable manufacture of affordable zero emission vehicles no matter where they are produced, said the Department for Transport, adding the government subsidies are under ongoing review to ensure it delivers the greatest possible impact and value for public money.
Many firms are finding it difficult to get grants for their cars “because it happens to be produced in China,” said a senior representative of a carmaker with a significant U.K. presence.
Britain’s SMMT auto lobby has “been calling for incentives for a very long time,” the senior representative said. “We wanted it to be something where, if we're bringing a case for a car, then people will look at that case based on 'well, that car is produced sustainably, using renewable energy' rather than just saying that car is not allowed in because it's produced in China under the guise of it falling afoul of SBTi.”