Toyota has warned that the European Union faces “isolation” and risks losing investment if it goes through with its proposed ‘Made in Europe’ rules.

The remarks came from Toyota Europe CEO Yoshihiro Nakata, who said the EU risks sabotaging the international ties that have long strengthened its automotive industry through the proposals listed in the Industrial Accelerator Act (IAA). His comments mark a rare broadside from Toyota against the bloc's increased protectionism.

“We do support the intentions of the IAA, but we fear it could lead to isolation or weaken the European industry overall,” Nakata told the recent Automotive News Europe Congress.

The IAA outlines a series of measures designed to protect key EU industries, including automotive and battery making, from increased competition from Chinese firms, which have long benefited from state backing and are now steadily gaining market share from established car brands, rising to 8.8% across Europe this year to the end of April, according to figures showed at the event by Dataforce.

Nakata’s warning was delivered in the same week that three of Europe’s biggest local manufacturers – the Volkswagen Group, Stellantis and the Renault Group – delivered a letter to the European Parliament asking for legislators to delay and water down the IAA, citing the difficulties hitting proposed targets for parts localisation to qualify as ‘Made in Europe’.

“European auto makers face an unprecedented challenge to their competitiveness due to significant technology gaps in strategic areas, intense global competitive pressure and persistently high energy, manufacturing and regulatory costs,” they said in the letter, first reported by the Financial Times.

Toyota along with the Volkswagen Group, Stellantis and the Renault Group want the definition of 'European' to be expanded to take into account of the use of parts and factories within the sphere of influence of the EU but sitting outside its borders, such as the UK.

“European resilience lies not only on local production but also… with key international partners,” said Nakata, listing Japan, Korea, the UK and Turkey as examples. “We believe these kind of trusted partners should be created as equivalent for ‘Made in the EU’ and the IAA. If excluded, we and other OEMs may face severe commercial uncertainty, and also may lose our power to continue the contribution to European society,” said Nakata, warning that this could put future investment at risk.

Car makers operating in the UK, including Toyota and JLR, are deeply concerned that cars built here could be locked out of benefits earmarked for electric cars made in the EU, including inclusion on state procurement lists, eligibility for state purchase incentives and access to the sub-4.2m ‘E-car’ category with its credit bonuses.

“The strict EU assembly rules and EU27 eligibility criteria currently proposed would effectively put UK manufacturers at a systemic competitive disadvantage,” said Mike Hawes, CEO of the UK's Society of Motor Manufacturers and Traders, in a statement in March.

Meanwhile, the Volkswagen Group, Stellantis and the Renault Group are proposing a watered-down version in which 70% of vehicles sold in the EU source 70% of their value within their borders, with that value to include everything from engineering to manufacturing. 

Rebuilding the European car industry to exclude the low-cost manufacturing bases established in recent years in places such as North Africa doesn’t make sense, argued Renault Group CEO François Provost at the Automotive News Europe Congress. “The new issue is not about having plants in Morocco. Or trading with Turkey. We have been doing this for two decades,” he said. “No, the new issue is the fantastic competitiveness of the Chinese industry.”

Provost argued that the European Union should deal with the Chinese in the same way China did with the European car industry when they provided access to their market on condition they build local partnerships. “This will give time the industry to adapt,” he said.

Car makers that have established Europe as a global export base – such as BMW and Mercedes-Benz – have long been opposed to erecting the barriers to its home market, fearing retaliation. But the signs are their views are now aligning more with locally focused car makers, particularly as the key market of the US quickly erected walls of its own in the form of much higher tariffs.

“Historically, there was a division between the French and the Germans, but I think the barriers are falling, and the points of views are getting closer,” Philippe Houchois, automotive analyst at banking firm Jefferies, told the Automotive News Europe Congress. “I’ve spent a lot of time with BMW management recently, and while their official line is to be open on trade, they recognise there needs to be a level playing field.”

There are signs that the IAA proposals, announced in March, are already having an effect on the Chinese car makers in terms of encouraging local manufacturing despite not being close to ratification. 

MG revealed earlier in June that its long-planned European factory will be in Spain, while BYD has reportedly postponed its planned Turkish plant and is instead looking at taking over an existing plant, potentially also in Spain. Leapmotor has expanded its manufacturing tie-up with partner Stellantis with an agreement to take over the company’s Madrid plant.