Confidence needed for UK automotive industry to secure future investments

27 September 2023


The UK’s automotive industry is recovering from a turbulent period initiated by Brexit and compounded by COVID-19 and supply-chain issues. Autovista24 special content editor, Phil Curry, explores how the country is looking to build confidence in the sector.

Following the Brexit referendum, investment in the UK’s automotive sector dropped rapidly. In 2018, with the threat of a ‘no-deal’ firmly entrenched in the minds of businesses across Europe, inward investment into the country dropped 46.5% to just £588.6 million (€677.1 million).

Since then, with the EU-UK Trade and Cooperation Agreement (TCA) in place, investors seem less spooked. Now the industry can seek investment without fear of disruptions affecting money coming into the country’s marketplace.

This year alone, Tata Group confirmed a £4 billion investment in a new UK gigafactory for its JLR brand. Meanwhile, BMW announced a £600 million investment in its Oxford and Swindon Mini plants, setting them up for electric vehicle (EV) production. Stellantis has also begun building EVs at its Ellesmere Port plant following a £100 million investment, something that seemed very uncertain during the Brexit negotiations.

‘British automotive manufacturing has clear advantages, a skilled, highly productive workforce, cutting edge plants, a diverse vibrant supply chain and world-class R&D, all of which we must continue to promote in the face of fierce global competition,’ commented Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), following the news of BMW’s plans for Oxford.

‘Investments such as this improve productivity and help deliver jobs, growth and economic benefits for the country,’ he added.

The UK has been attracting green automotive investments in recent years. In 2021, Nissan announced a £1 billion investment in its Sunderland site for a gigafactory, renewable-energy production and energy-storage solutions.

Speaking at the recent SMMT Electrified conference in London, Mark Harper, secretary of state for the Department for Transport, highlighted just how much investment in the UK has picked up since the TCA was put in place.

‘We have seen £6 billion in private investment going into the UK automotive sector in two years. That is a testament, I think, to the enduring partnership between UK government and this industry. The charge-point industry says it has another £6 billion of investments in the run-up to 2030 to roll out charging infrastructure,’ he said.

Sustainability and securing investment

The automotive landscape is changing. No longer is investment simply about building parts or producing cars. The UK is home to a number of vehicle production facilities, making everything from panels to engines, from cars to vans.

But for this to continue, companies need to invest in both production facilities and supply chains, including emerging markets responsible for raw materials. Alongside a trading agreement that is beneficial to all parties, companies are looking at increasing their green credentials, and this needs to be taken into account when investing.

The SMMT has called for a future government to introduce a ‘Green Automotive Transformation Strategy’ for a stronger economy. This would help the UK automotive industry achieve net zero, and reveal a strategy which enables innovation, attracts investment, and secures manufacturing of clean technologies.

‘When we are looking at the industrialisation phase, this kind of investment needs green energy because we are trying to decarbonise, and we need it to be competitively priced,’ commented Julian Hetherington​, director of automotive transformation at the Advanced Propulsion Centre UK, during the SMMT Electrified conference. ‘We also need access to funding to make them happen in the UK, and we need access to the raw materials.’

Hetherington also highlighted another crucial element that would attract companies to the UK, one which may have been lacking in recent years. ‘We need a stable investment environment, and that really is about policy,’ he said. ‘It is about industrial policy, and it is about how that industrial policy then translates into the market, which is what creates the demand. When you have that stability, then you have the right conditions to invest.’

Rules of Origin headache

There is an air of uncertainty at present surrounding free automotive trade between the UK and the EU, especially when it comes to EVs. This is because Rules of Origin targets are set to change from 1 January 2024. There will be new requirements for the percentage of a vehicle’s value, and a battery’s value, to come from locally-sourced materials.

Due to COVID-19 and the supply-chain crisis, carmakers are unlikely to be able to meet the new targets, and if this happens, import tariffs of 10% per vehicle could be applied. The European Automobile Manufacturers’ Association (ACEA) believes that tariffs could cost EU vehicle makers €4.3 billion over the next three years, and potentially reduce EV production by around 480,000 units.

While carmakers are investing heavily in battery supply chains, more time is needed to ensure this can scale up to the level required to meet the Rules of Origin requirements. Speaking at MOVE2023 in London earlier this year, Lars Carlstrom, CEO of Italvolt and Statevolt, said that it can take 18 months to build a gigafactory from the ground up, followed by 15 months to reach full production capacity. With the time taken to secure various permits and permissions, it could be three years before a gigafactory is ready to meet its supply requirements.

‘We think we have a need for somewhere between 80 and 100 gigawatts of capacity in the UK,’ commented Hawes. ‘Envision in Sunderland has been there for a number of years and is currently expanding, with that coming online soon. The Tata investment is potentially another 40 gigawatts of capacity as well.

‘What matters is making sure that we have that industry here and you have the right conditions to attract further investment because, invariably, if you have the battery manufacturing here, it tends to ensure that you can keep or attract vehicle production manufacturing as well.

‘We see the investment that is going on both in the UK and Europe. For battery manufacturing, a lot of that will not come online before 2026 or 2027, when we are into the second stage of the Rules of Origin requirements,’ Hawes added.

A wider field

The electrification of the automotive industry has led to a number of startups infiltrating the sector as it expands into new markets and territories. These companies hold both promise and risk for investors. They can corner markets and build huge shares before established companies, like Tesla has done in the EV market, or they can falter and fail.

But if there is demand, then investment makes sense. Cornish Lithium is one such business, offering a local supply chain for a crucial battery material, and offering sustainable alternatives to mining.

The company has secured a funding package of $210 million (£173 million) which will help it accelerate the creation of a domestic supply of battery-grade lithium compounds. This is crucial in supporting the scaling up of domestic battery production for EVs and energy storage solutions.

‘Investment is very hard to secure,’ stated Jeremy Wrathall, founder and CEO of Cornish Lithium, at SMMT Electrified. ‘But the fact that we have secured nearly a quarter of a billion dollars for our project here endorses the fact that the raw materials are in the UK. Raw materials can be extracted, and that is exciting because if we do not have access to the raw materials then there is no supply chain in the UK.’

Wrathall also highlighted how a tightening of global investments can affect businesses. ‘We are facing up to China dominating the supply chain. If that was not bad enough, the US Inflation Reduction Act has shifted capital towards their domestic industry. The EU is very much rightly focusing on its own patch, and it leaves Britain alone.

‘But I think our government has realised that and is really pushing hard. In fact, some of our finances that we secured came from the UK Infrastructure Bank, which is a treasury-funded body. But it is very difficult for some businesses to secure funding right now.’

Dr James Widmer, CEO at Advanced Electric Machines, a startup that was spun out of Newcastle University in 2017, agreed that global investments into the UK market is a tough ask in the present climate. This makes funding from UK businesses and organisations paramount to surviving.

‘In terms of the investment, there is a lot to be really positive about in the UK,’ he stated. ‘We have great supportive investors, we have agencies, such as the Advanced Propulsion Centre, investing in the sector. What we are up against in the UK is a global race at the moment,’ he said.

Overall, new technologies and developments are creating investment opportunities. All that is needed is the right trading conditions, confidence in the market, and the potential for growth. The last few years have shown that the UK is on the right track following the turmoil over Brexit. However, there is still more that can be done to ensure further investments take place, as the automotive industry continues its transformation to a zero-emission future.