HomeInfrastructureTransportIs it too late to save the UK’s automotive industry?

Is it too late to save the UK’s automotive industry?

Following repeated announcements of delays and last minute deals to save itself, the Britishvolt gigafactory finally went into administration in January. Since, it has been reported that 2022 saw UK car manufacturing fall to its lowest level since 1956. It’s not controversial to say that signs like this indicate the UK is falling drastically behind other big car manufacturing nations as the transition to electric vehicles (EVs) accelerates.  

The UK needs to make batteries
Failure to attract and retain investment in gigafactories is the most pressing issue facing the industry. Domestic battery production decreases both cost and risk to manufacturers; local production  reduces the need for foreign imports, and the hazardous nature of lithium-ion batteries makes  cross border transportation dangerous and expensive. The trade agreement between the UK and EU, known as the Rules of Origin, coming into force in 2027, means batteries will need to be made in the UK or the EU to avoid a ten per cent tariff. Currently 55 per cent of UK car exports go to Europe, so the survival of the industry depends on securing a supply of UK produced batteries. 

Britishvolt’s intended manufacturing capacity was 38GWh by 2030, so its closure leaves a gaping hole in the estimated 100GWh needed to sustain the UK automotive sector in future. A spot of good news is the announcement of a new battery plant in Oxfordshire, but this is not projected to even reach 1GWh production. The UK’s potential to grow battery manufacturing becomes more uncertain with every deal made between UK car makers and battery companies abroad. High energy costs are also hampering the development of this energy intensive industry, with Britishvolt citing this as a reason behind its problems.  

The US Inflation Reduction Act is a challenge
It is good to see the BEIS Committee inquiry into EV battery production, suggesting parliamentarians are starting to consider this issue. But without concrete action the UK will fall behind the rest of the world.   

The US Inflation Reduction Act (IRA) will provide a $7,500 tax credit for EVs purchased; to qualify for this, the final assembly of the vehicle must be completed in North America. It means 50 per cent of battery components will have to be assembled in North America from this year, increasing to 100 per cent by 2029. This is already having an impact on the UK automotive industry with Arrival’s announcement that it will relocate from the UK to the US. This comes on top of other previous moves, such as BMW shifting its electric mini production to China, suggesting the IRA is only exacerbating the trend away from the UK. 

The IRA will also subsidise up to $45 per kilowatt hour of battery production costs from next year, continuing into the early 2030s, guaranteeing long term security to US investors.  

The EU’s response could make things worse
The EU has responded to this by pressurising the US to relax its rules around the receipt of tax credits to include EVs made in the EU. The UK has yet to make a similar request to help its industry.  

There have also been calls from France and Germany to develop an EU equivalent. So far, the EU has announced it will bring forward a new Net Zero Industry Act to spur investment, as well as a Critical Raw Materials Act to boost the processing, refining and recycling of the resources required to make EV batteries.  It may also relax state aid rules to streamline access to finance for key industries in the net zero transition.  

With the challenge of large subsidies from across the Atlantic, and a potential equivalent in the EU, the UK risks being overlooked by major investors and missing out on the high quality green jobs offered by the car industry in future.  

We need to kickstart battery recycling
Even though the number of EV batteries reaching the end of their life is relatively low now, a wave will be coming before too long. The UK can take advantage of this by developing a battery recycling industry, which would support secure critical raw materials supply for UK vehicle manufacturers and provide further sources of skilled work in this associated industry.  

Legislation passed now will determine which countries are best placed to take advantage of this opportunity. But the UK already finds itself on the backfoot. The new EU Battery Directive will stimulate progress in Europe by putting in place recycled content targets for new batteries, as well as recovery rates for critical raw materials in batteries reaching the end of life.  

Development of a battery recycling industry wouldn’t be the only answer to the UK automotive sector’s problems, but it demonstrates that both short term action to respond to pressures from abroad and a longer term strategy to capitalise on future opportunities are needed.  

Despite all this, the UK produced a record number of EVs last year, suggesting it may not yet be too late to grab a bigger share of this industry.