Batteries, Brexit and the existential threat to UK car manufacturing

The much-trumpeted electric future of the UK motor industry has been cast into serious doubt after several manufacturers called on the Government to renegotiate post-Brexit rules on battery supply.

The dispute is the latest blow to the Government’s ambitious strategy of ending petrol and diesel new car sales by 2030. It follows the collapse earlier in the year of Britishvolt, the planed “gigafactory” that was intended to supply lithium-ion batteries to much of the UK car sector.

Now a group of car manufacturers, including Stellantis, Ford and JLR, wants the UK government to address trading agreements between the UK and EU, drawn up hastily in the aftermath of Brexit. The automakers fear that the current rules could result in the imposition of tariffs on imported battery packs, making UK manufacturing uneconomic compared to other European nations.

This in turn could lead to UK plant closures at a time when UK output has already tumbled to around half pre-Brexit levels. Production has collapsed since it hit a peak of 1.75 million cars a year in the heady days of 2016. In 2022, UK car production tumbled to just 775,014 units – a fall of almost 10% even against Covidravaged 2021.

This latest blow to the Government’s ambitions for an all-electric auto industry, shines a stark spotlight on the damage, perhaps irretrievable, that Brexit has caused. It comes just months after the collapse of the proposed Britishvolt electric car battery venture, described at the time by former Aston Martin and Nissan UK CEO Andy Palmer as “an unmitigated disaster for the auto industry in the UK”.

While Britishvolt has subsequently been bailed out by Australian investor Recharge Industries, it is likely to focus on other types of batteries if and when it does start production, not automotive batteries. This will leave most manufacturers without any source of UK-based supply , something that is needed under the post-Brexit trading agreements.

With the clock ticking toward the Government’s self-imposed deadlines for the end of petrol and diesel car sales, will the lack of battery capacity force the deadlines to be pushed back? With Britain isolated through Brexit and massive investment in battery capacity in the EU, it doesn’t look good for the UK manufacturing sector. Can anything be done to right the ship before it completely capsizes?

The need is pressing. What Stellantis and the other manufacturers want to see reviewed is the EU-UK Trade and Cooperation Agreement (TCA) which requires at least 45% EU or UK content for electric cars, and 60% for batteries. from January 1, 2024.

Stellantis, the parent company of Vauxhall, Citroen, Peugeot, Fiat and Chrysler, wants this pushed back to 2027 – and the company has threatened to pull production from its UK plants at Ellesmere Port and Luton, jeopardising 5,000 jobs.

Stellantis describes the new rules as “a threat to our export business and the sustainability of our UK manufacturing operations unable to meet these rules of origin”.

The Rules of Origin date from December 2020, when Boris Johnson’s Government scrambled together the TCA. This seemed to fend off the immediate threat of tariffs – but in reality, all the TCA did was kick the can down the road. The Rules of Origin requirements of the TCA specify a six-year phase-in of the requirement for battery electric vehicles (BEVs) to have a maximum of 45% content from outside Europe, reducing from 60% to 55% to 45% over the period.

The EU does not seem minded to help Stellantis and co out. In a report published in March 2023, the European Commission said it did not intend to revisit product-specific rules beyond “technical adaptations”. The report said: “These rules strike a fair balance while contributing to the EU’s overarching objective of achieving strategic autonomy in essential sectors.”

According to Professor David Bailey of Birmingham Business School: “The TCA requires that by the end of 2026 there has to be 55% local content for BEVs and that the batteries themselves have to be assembled in the UK or the EU for the vehicle to qualify for tariff-free trade. This will pose a particular challenge for UK auto and industrial policy.”

This means car companies will not be able to source EV batteries from Far East suppliers in Japan, Korea or China after 2027. It will be able to source them from the EU – but this is no longer straightforward. While the TCA has got round the problem of tariffs – providing Rules of Origin are met –Brexit has created mountains of paperwork and customs delays. These are not helpful to Just-In-Time supply chains, around which the entire car industry has been built.

The optimum solution would be localised battery production, using components sourced in the UK and EU – basically, what the failed Britishvolt ‘gigafactory’ was supposed to provide.

Without it, the UK industry is in something of a hole. Prof Bailey puts it in stark terms: “Without a major effort to reorient the auto supply chain, UK car assembly will be increasingly be left assembling obsolete internal combustion engine cars and be dependent on imported BEV components from the EU to meet rules of origin rules going forward. That isn’t going to make much business sense.”

The workable model is the one that

Nissan is adopting – co-locating a battery supplier close to its plant, so the assembled batteries will qualify under the TCA’s Rules of Origin. But for that to happen, battery makers have to be tempted to make their investments in the UK.

And given Brexit’s barriers, why would they do that when there are ample opportunities to make investments close to EU plants. Elon Musk cited Brexit as one of the main reasons he chose Berlin rather than Britain for his European battery “gigafactory” in 2019.

Indeed, there are at least 15 other “gigafactories” either under construction or being planned throughout the EU. These include NorthVolt in Sweden; Saft/Stellantis in France and Germany, Samsung SDI in Hungary and LG Chem in Poland. Most of them are strategically located to supply existing car factories – such as EnvisionAESC’s planned plant in northern France, which will supply Renault’s ‘ElectriCity’ group of three nearby factories, Douai, Ruitz and Maubeuge.

The EU is serious about batteries in a way that the UK Government is not. The EU is aiming to be independent in battery production by 2026, an ambitious target given that around 70% of electric vehicle battery components currently originate from outside Europe. And China is growing at an even more rapid rate – by 2030 China is expected to make more than twice as many batteries as every other country combined, according to consulting group Benchmark Minerals.

But seven EU member states are pumping €6bn into the European Battery Alliance, a project to build a third of global battery cell production capacity in the EU by 2030.

Individual member states are serious about this too, said Prof Bailey. “Germany has set up a €1bn federal support programme for EV battery production, while in Poland and Hungary special economic

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