UK car industry: UK stands at brink of decommissioning its automotive industry

Following calls to delay the imposition of the post-Brexit ‘Rules of Origin’ Alastair Cassels, partner of Automotive Advisory at MHA, says failure to develop a strategy for battery and EV manufacturing in the UK will devastate a sector that employs approximately 180,000 people in manufacturing:

“In one week, the final consultation period for the UK Government's Zero Emission Vehicle mandate will close. This will signal the last opportunity to help shape the policy that is designed to ensure that the UK leads the world in the decarbonisation of road transport. It's an ambitious policy that will place huge pressures on car manufacturers to introduce more affordable electric vehicles (not hybrids) in greater volumes than are currently catered for by the charging infrastructure. It will be an existential challenge for some.

“This week we heard from Stellantis who are one of the largest global car manufacturers that make Vauxhall, Peugeot and Fiat cars to name a few. They aren't complaining about the mandate and its challenge but instead are reflecting on the how Brexit may signal the end of large parts, if not all of the UK domestic car production. The problem lies with the "Rules of Origin" that determine whether an export tariff will be attached to the distribution cost of a vehicle.

“In January 2024 55% of the value of an electric car's components must be sourced in the UK or a 10% tariff will be applied. With batteries being such a huge part of the EV component cost, this causes a real problem for domestic producers. It was estimated that by 2030 UK domestic car production would demand c80 GWh of battery production. Currently the UK has one plant producing 1.9GWh. We are not on track to secure the required level of domestic battery production.

“The United States recognised this issue and has introduce the Inflation Reduction Act (IRA) to drive the decarbonisation of its economy and insulate it from reliance on imports of batteries and other components from abroad (mostly China). The IRA provides access to billions of dollars of loans and incentives to help the US economy produce and sell Electric Vehicles. It's to some extent protectionist but it secures domestic industry as well as helping consumers move to EVs.

“By contrast the UK now stands at the brink of decommissioning its automotive industry due to Brexit and an underdeveloped industrial policy. UK Car production has halved since the Brexit vote. Honda have signalled an exit and now Vauxhall's owners comments will be causing employees at Ellesmere Port and Luton to have sleepless nights.

“The government should prioritise developing a strategy for battery and EV manufacturing in the UK. It should span the entire value chain and clarify how access to critical raw materials will be secured; how private capital will be mobilised; and how the UK will prepare for future opportunities, such as battery recycling and next generation battery technologies. Failure to do so will signal devastation for a sector that employs c180,000 people in its manufacturing capability.”