Are cheaper European cars coming due to the Australia-EU free-trade agreement? Auto brands aren't sure yet

The benefits of the upcoming Free Trade Agreement (FTA) between Australia and the European Union (EU) remain unclear, say key automotive brands, which claim it’s too soon to know exactly how it will impact local buyers.

Earlier this week, the Australian federal government announced its long-awaited FTA with the EU, following a protracted negotiation since 2018.

The final proposal, which needs to be ratified before its expected implementation in mid-to-late 2027, includes the removal of the current five per cent tariff on all vehicles made in the EU and sold here – potentially spelling an immediate price cut for buyers.

It also proposes changes to the Luxury Car Tax (LCT) for electric vehicles (EVs), with the threshold for battery-powered models raised from $91,387 to $120,000. The LCT remains unchanged for petrol, diesel and hybrid vehicles, however, at $80,567.

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So the FTA looks set to save buyers of EU-made vehicles thousands of dollars – and in the case of buyers of luxury EVs from the continent, potentially even more than hybrid, petrol and diesel cars made in Europe.

Yet a number of European auto brands have told CarExpert the direct impact of the agreement on showroom pricing is not yet clear.

“We welcome the proposed update to the Luxury Car Tax with a higher threshold for electric vehicles, alongside the planned removal of the five per cent import tariffs as part of the Australia and Europe Free Trade Agreement negotiations,” Vikram Pawah, BMW Group Australia CEO, told CarExpert.

“While we await further detail, these are positive steps that will help make electric vehicles more accessible to customers.”

Mercedes-Benz Australia said it also saw the announcement of the FTA as a positive step.

“Mercedes-Benz supports free trade, as it secures prosperity, growth and innovation,” a spokesperson told CarExpert.

“Therefore, we welcome the agreement, which sends a clear signal in support of rules-based trade and advances the EU’s diversification efforts.”

Mercedes-Benz Australia added: “The shift from five per cent to zero per cent can enhance the price competitiveness of EU-made CBUs [Completely Built Units, meaning complete vehicles] in Australia, while strengthened cooperation on raw materials can improve EU access to Australian supplies.”

The benefits to Australian new-car buyers appear obvious, but with the FTA still 12 to 18 months away from taking effect, the volatile global economy has tempered expectations around the extent of the potential advantages for local buyers of European cars.

There is also the risk of buyers postponing the purchase of their next European-made vehicle until the FTA comes into effect – an issue that brands will no doubt be discussing strategies to combat in boardrooms both locally and in Europe.

“It’s still too early to confirm what the announced Free Trade Agreement changes will mean in practical terms for Porsche customers,” a Porsche Cars Australia spokesperson told CarExpert.

“There is currently no confirmed guidance that can be provided on any specific customer effects at this stage.”

In Sydney, where Audi Australia is based, the company told CarExpert it “welcomes the announcement of the proposed Australia-European Union Free Trade Agreement and supports any initiatives that have the potential to deliver long term benefits for Australian drivers.

“We are currently reviewing the details of the agreement to understand what it may mean for our customers and the impact, however, without timing or a confirmed implementation period, we cannot comment on this further. We will provide updates in due course, once the implications for Audi customers in Australia become clearer.” MORE: Tariffs on European cars scrapped in Australia, but Luxury Car Tax lives on – with revisions