Business as usual is not an option for the British car industry 

A version of this post was first published by Business Green. 

The survival of the British car industry in recent decades is remarkable, and its economic contribution is significant. But the number of vehicles being produced fell by 27% in the year to September. So policy makers must make the most of a steadily growing domestic market for electric cars and put in place the industrial strategy needed to support the car industry into the future. 

It might not seem obvious from newspaper headlines, but the UK’s transition away petrol and diesel cars and towards electric vehicles (EVs) is motoring ahead. EV sales in the year to August were up by 26 per cent compared to the year before, while sales of petrol and diesel cars slowed by 27 per cent.  

Climate targets have stimulated the market
Ambitious climate targets set by the government are successfully creating a market for EVs. The zero emissions mandate (ZEV), which requires manufacturers to sell a rising share of new zero emission vehicles each year, appears to be doing what it was designed to do. Success in getting polluting vehicles off the road means the UK’s transport system is getting cleaner, which is essential is it’s responsible for about a quarter of total emissions. 

We are not alone in this transition. Globally, EV sales doubled every 18 months from 2011 to 2023, reaching 12 per cent of total market share. At this rate, they will dominate sales globally within a few years. The future of driving is clearly electric.  

However, EVs driven on British roads do not necessarily have to be built in Britain. Indeed, domestic producers are steadily losing market share, with production of all types of British cars roughly halving between 2019 and 2025.  

The industry is struggling with high energy costs
British built cars are losing ground to Chinese imports which are cheaper and often more technologically sophisticated than their European or US rivals. The industry is also struggling against high energy costs, low investment and trade disruption with Europe and the US. 

Alarm bells are ringing in the government and industry, as losing domestic car manufacturing would be a major blow to the economy. The automotive sector contributed £47 billion in gross value added (GVA) in 2023 and it employs around half a million workers on wages 13 per cent higher than the national average, according to the CBI.  

The government’s response in the recent Industrial Strategy white paper has been to set an ambitious target to raise production by 50 per cent to 1.3 million vehicles a year by 2035. It proposes some extra financial support and help with power costs in the future. However, there were few other specifics in the strategy, meaning the industry will have to wait until the Automotive Technology Strategy is published next year to see a long term plan for the sector. 

This long term plan is sorely needed as the transition cannot be left to the market alone. The transition to electric driving involves many uncertainties around technology, such as which will be the future standard and how appropriate technologies will be developed for a future that cannot be predicted? There are also economic and policy uncertainties, from how large the market will be and what a potentially successful product will be, to the degree of investment needed in charging infrastructure.  

This has made the companies that produce the car brands we recognise, and their suppliers, hesitant to invest in new products and components, because they are waiting for each other to make the move. As a result, car plants have been closing, the latest being the Stellantis Luton site. Capacity utilisation dropped from 65 to 54 per cent in Britain between 2019 and 2023 and, for many car manufacturing firms, they are now below sustainable levels. 

A plan for British car production must go beyond halting further decline in the short term, although that’s vital. Our new report argues it should instead focus on innovation in the next ten to 15 years. 

Over that time, we’ll see vehicles powered and controlled by sophisticated software and electronics.  Making these cars will play to Britain’s strengths in these sectors. But the ground should be prepared now in universities, technical colleges and companies by developing the skills, processes and techniques needed.  

The industry also needs to plan ahead for the wider supply chain for British cars. This involves more than 2,500 businesses, which employ 80,000 people and add over £15.5 billion in GVA to the economy. Workers must be involved in these plans. And, given the latest drop in production, which started around the time the UK left the European Union, and considering the competitive pressures the industry faces, policy makers should think hard about the trading relationships British carmakers need. 

In 1982, Britain produced 888,000 vehicles, nearly half the number it had produced ten years before. Things looked very bad for the car industry then. But it recovered, and once again produced cars people wanted, supporting good jobs around the country. 

Carmakers need to face the future, which is electric. If the government starts planning for it now, British EV manufacturing could prosper.