The UK's automotive industry voice has called on Labour and the European Union to urgently agree terms or risk impacting the £69billion sector.
Europe is set to introduce new "Made in EU" rules to protect companies across the continent from unfair competition practices and the surge of Chinese businesses.
The Draghi report, which put forward a number of recommendations to form the basis of the Industrial Accelerator Act, highlighted that Chinese competition on electric vehicles required rules to be introduced.
Some non-EU nations will be considered as "trusted partners" by the bloc, although the UK has not yet been confirmed in this category.
Recent reports have suggested that France could be open to allowing UK-made vehicles to qualify for "Made in Europe" subsidies.
French Trade Minister Nicolas Forissier told the Financial Times that the EU needed to solve the "problem" of the UK being left out of the new measures.
Cars for corporate fleets and small electric vehicles would need to be produced in the EU to be eligible for subsidies, prompting concerns from the UK auto industry.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), highlighted the close partnership between the EU and UK.
The automotive industry voice has called for the UK and EU to ensure that the UK is designated as a 'trusted partner'
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He noted that Europe is responsible for procuring more than two-fifths of overall UK output, and provides almost two-thirds of cars purchased by UK drivers.
The trade partnership is estimated to be worth around €80billion (£69billion) every year to both sides, emphasising the importance of the partnership.
Mr Hawes said: "That is why the UK and EU must not sleepwalk into new trade friction. Consumers already face higher prices and less choice, with tougher Rules of Origin from January 2027 potentially triggering tariffs on electric and hybrid vehicles.
"Now the bloc's 'Made in Europe' proposals threaten to make UK automotive goods from key parts of the EU market uncompetitive with devastating consequences for supply chains, jobs and investment on both sides of the Channel.
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"At a time when Europe faces fierce competition from global rivals, this would be a damaging move."
The SMMT has worked with politicians, including the EU-UK TCA Domestic Advisory Group, to find a solution for the Rules of Origin and Made in Europe policies.
Mr Hawes stated that "encouraging" steps were being taken to address the concerns between the UK and EU, with experts calling for a "pragmatic approach".
He called on the upcoming EU-UK Summit to "safeguard our mutual free trade, competitiveness and economic growth".
The number of UK-made cars exported abroad dropped by almost eight per cent last year
| PAIn 2025, 56.7 per cent of cars produced in the UK were sent to Europe, almost four times more than any other country.
The United States placed second with 15 per cent of exports, followed by China (6.3 per cent), Turkey (5.3 per cent) and Japan (2.9 per cent).
In total, 555,826 cars were manufactured for export in 2025 across the UK, although this was a fall of 7.9 per cent compared to the previous year.