“If the cost of EV manufacturing in the UK becomes uncompetitive and unsustainable, operations will close,” carmaker Stellantis told a parliamentary inquiry on the future supply of batteries for electric vehicles in the UK.
The first challenge — and the one that will get the most attention — is that requirements under the Brexit agreement could add 10 per cent tariffs to cars traded between the UK and Europe from 2024.
But Stellantis, which makes electric vans at its Ellesmere Port factory in Cheshire, was also making a broader point: the UK car industry is facing a future where it could increasingly struggle to compete.
The tightening of so-called rules of origin under the Brexit agreement is a problem for carmakers on both sides of the Channel. (This could, Brexit fans, actually be a situation where Mercedes and BMW do lobby European governments for action). From January, electric vehicles must source 45 per cent of their content from within the EU and UK, and batteries 60 per cent, to qualify for tariff-free trade.
The European battery industry simply hasn’t developed to the extent where that is feasible, say carmakers. The cost of some key commodities also soared after Russia’s invasion of Ukraine. Those mostly can’t be sourced locally — or are non-originating in the lingo — and their higher costs have skewed carmakers’ assumptions. (To complicate matters further, tariffs would push up the costs of electric vehicles just as separate UK sales targets kick in requiring manufacturers to steadily increase the share of zero-emission vehicles in their overall sales).
The EU may have an incentive to delay tougher requirements. With 30 gigafactories for making batteries in the pipeline, the development of its industry is further advanced than the UK’s, something I wrote about earlier this week.
Its carmakers should ultimately benefit. Still, the European Commission is said by industry sources to be wary of recutting rules designed to force the onshoring of battery-making from Asia.
Either way, the UK has a longer-term issue. Stellantis noted that the “higher logistical costs” from importing batteries from overseas would put UK carmakers at a competitive disadvantage, meaning that production would shift overseas.
The UK government’s disinclination towards industrial strategy has certainly held back the development of battery manufacturing. But the huge step up in energy intensity in shifting from making internal combustion engines to battery EVs also means high UK energy costs — long a bugbear for intensive users such as the steel sector — are becoming an acute issue in automotive too.
Nissan’s generally milder contribution to the same inquiry noted that energy costs had become “particularly impactful on the UK’s international competitiveness”. Industry body the SMMT said its members reported that electricity prices were more than twice the levels at other EU vehicle plants, with gas prices 60 per cent higher, calling this “critical” to the UK sector’s development.
One complaint is that while battery manufacturing qualifies for support available to energy-intensive industries, carmakers themselves don’t. Regardless, the support on offer has historically fallen short of levels available on the continent. UK Steel points out that the discounts available on wholesale electricity prices kick in at £120 per MWh in Germany (and is more generous) compared with £185 per MWh in the UK. The trade body says industry pays £15 per MWh in network charges in the UK, versus £1 in Germany and lower still in France.
The government in February said it would consult on a “British Industry Supercharger” promising to address this — but the country has a long history of letting its manufacturing industries wear higher costs. Relative energy costs are expected to play a key role in Tata Motor’s imminent decision on whether a battery factory for Jaguar Land Rover comes to the UK, according to David Bailey at the University of Birmingham.
Tackling the Brexit agreement’s rules of origin is only one leg of the race to secure a share of the market for battery vehicles. It is a race that the UK starts at a considerable handicap.
