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  1. Business
1 July 2021

Why Brexit still threatens the UK car industry

The Sunderland gigafactory is a rare piece of good news in British motor manufacturing’s race against a much larger and better-funded competitor: the EU.

By Will Dunn

The news that Nissan plans to build its new all-electric model in Sunderland, accompanied by a new “gigafactory” to produce batteries for electric cars, has been hailed as a triumph for the British automotive industry after Brexit. Boris Johnson, who visited the plant today, described the announcement as an indication of “our ability to create hundreds of green jobs and boost British industry”.

Auto industry body the Society of Motor Manufacturers and Traders (SMMT) welcomed the news more cautiously, however, by pointing out that the commitment represents less than a sixth of the 60 gigawatt hours (GWh) of capacity per year that will be necessary to continue large-scale car production in the UK.

And the UK is in a race not only against time, but against the EU, which has already committed €6.1bn to the European Battery Alliance to develop battery manufacturing on the continent. David Bailey, professor of business economics at Birmingham Business School, points out that European factories will also have incentives “at the national level – there’s a lot more support from the likes of the German government and the Hungarian government. Hungary has a special economic zone where battery makers and car makers can invest in battery production and get lots of tax breaks. There’s a race on.”

Bailey says that 20 gigafactories are already built, under construction or planned across the EU. Some of these are truly huge – the planned Tesla gigafactory near Berlin (a location Elon Musk chose over Britain due to Brexit uncertainty) is expected to produce around 50GWh of capacity per year, compared to Sunderland’s 9GWh, while Volkswagen is planning six gigafactories with a total capacity of target of 240GWh.

These huge factories are essential to reducing costs and making the transition to battery-powered cars affordable to consumers, says Bailey: “It’s all about scale”.

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Because batteries are large, heavy and difficult to transport, future car production will require car factories and battery plants to be close to one another ­– either developed as joint ventures, as at Sunderland, where the Chinese battery manufacturer Envision AESC will build the £450m gigafactory; or in-house, as Tesla does. Bailey says this reliance on scale is the danger for the UK car industry, because without enough gigafactories in the UK, “mass car production will move to where the factories are. Given that there’s so much investment in the EU, a lot of it will move the EU.”

[see also: How R&D can rebalance the economy]

Bailey also points out that under the terms of the UK-EU trade agreement, “cars with EU-made batteries can be exported to the UK tariff-free”. Of the cars produced in the UK, more than 80 per cent are exported and more than half of those exports go to the EU, so the race for production carries a significant prize on either side of the Channel.

It is no coincidence that the announcement has come after the publication late last month of the Subsidy Control Bill, which gives the government increased freedom to support businesses. This will be a key part of the UK’s offering as it seeks to make further agreements with the five other manufacturers with which the government is discussing battery production for other major car plants such as Ellesmere Port. In every case, it will need to negotiate with multinationals that are also being wooed by the EU – “car companies are very good at playing governments off against each other to get the best aid package”, says Bailey.

Attempting to win these projects will be very expensive. The Department for Business told me this morning that “it would not be appropriate to comment on commercially sensitive figures at this stage”, although the FT reports that the government has committed around £100m to the Sunderland factory. This does not include the £80m investment that Sunderland City Council will provide, with a private sector partner, for a renewable energy microgrid to power the site.  

Failing to compete against the EU, however, could be more expensive still. “Without battery making in the UK,” says Bailey, “mass car production will disappear”.

[see also: The experts were right: Brexit is doing economic damage to the UK]

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