The U.K. will strive to boost investment in its car industry, with battery cell manufacturing a top priority, now that a Brexit free trade deal has assuaged uncertainty over its prospects, the head of the British automotive industry association said Jan. 27.
The trade deal, agreed upon on Dec. 24, 2020, removed the threat of tariffs on exports of U.K.-made cars from manufacturers including Nissan Motor Co. Ltd., Tata Motors Ltd. subsidiary Jaguar Land Rover, Toyota Motor Corp., Stellantis NV subsidiary Vauxhall and Bayerische Motoren Werke AG's MINI brand. Honda Motor Co. Ltd. is ending U.K. production this year.
"We now need to basically ensure that potential investors understand that that uncertainty is finished. We are still competitive, we still want to maintain that competitiveness, we still want to trade internationally, and we're still a good country to invest in," said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, or SMMT, during its annual press conference.
"We still have a number of things in our favor. We've got to put the U.K. back on the map because understandably, investors haven't been looking first and foremost to the U.K. in the last three to four years," Hawes said.
Hawes said that despite the absence of tariffs on car exports to the EU, its largest market, new bureaucratic processes have created some costs and delays that it is working with the government to reduce. Some automakers have turned to air freight for component imports to avoid delays at seaports. Import and export licenses and other administrative costs are being estimated by some in the industry to equate to a tariff of 2% to 3%, the chief executive said.
"There is friction. It is beyond teething problems. This is the new reality that the industry has to adjust to. It is increasing costs, though, hopefully, as the situation begins to smooth out, as people become more experienced with what is required, it will settle down a bit. But there will be additional cost for the foreseeable. That ultimately affects our competitiveness and it puts pressure on manufacturers to do even more to improve productivity."
The U.K.'s decision to ban the sale of new gasoline and diesel cars from 2030 and hybrids from 2035 sets a clear course for the British auto industry, Hawes said, and makes attracting investment into battery cell manufacturing a priority in order to meet the trade deal's rules of origin. Current capacity is about 2 GWh, most of which is produced for the Sunderland-built Nissan Leaf. It is expected to reach 15 GWh by 2024, Hawes said, with 60 GWh needed by 2030.
The U.K.'s Faraday Institution, an independent electrochemical energy storage researcher, estimates that there will be demand for seven battery "gigafactories" by 2040, each producing 20 GWh of cells a year. China, Japan and South Korea dominate lithium-ion cell making globally, but the EU, U.S. and the U.K. see an urgency in establishing domestic facilities to ensure an adequate supply of a component that makes up a significant share of the added value in an electric car.
Hawes said the U.K.'s departure from the EU would mean a return to national "type approval" processes for new cars. Until now, a new car model could be approved for conformity with safety and other regulations by any EU country, enabling it to be sold in all of the other member states.
However, the industry should not expect U.K. standards to drift from those in the EU, Hawes said, especially since that would jeopardize the ability to export them.
"Talking to government, I have never heard any minister say that they have got a real appetite to change product regulation. They are not going to backtrack on environmental regulation. If anything, it will be tougher," Hawes said. "If there is regulatory divergence, then the cost of compliance goes up. That's why we want to ensure that U.K. product regulation is aligned with European regulation."
U.K. car production fell 29.3% to 920,928 units in 2020, the lowest level since 1984, SMMT data showed. Production of alternatively fueled cars, including battery-electric and hybrid vehicles, totaled 172,857 units. Engine manufacturing fell 27% to 1.84 million units.
Car exports to China, one of the most resilient markets in 2020, rose 2.3% to about 57,000 units and sales to South Korea also increased. The SMMT has said car production is expected to rebound to about 1 million cars this year, based on a recent independent forecast.