UK struggles with transition to manufacturing electric cars

Once on the brink of collapse, Britain’s automobile industry was painstakingly rebuilt through investments by carmakers from Japan, Germany and India.

State-owned British Leyland had become a byword for bad industrial relations, but in the 1980s Margaret Thatcher oversaw a sector renaissance that began with Nissan agreeing to build a car plant in Sunderland.

Now, however, the industry is struggling to ensure a successful transition from making petrol and diesel cars to manufacturing electric vehicles for the mass market.

“The UK has to get back to being a scale player,” said one sector executive. “If you lose that, you are not an automotive nation any more.”

Margaret Thatcher at the wheel of a Bluebird car at Nissan’s new car plant in Washington in Tyne and Wear in 1986
Margaret Thatcher at Nissan’s new car plant, which she officially opened in Washington in Tyne and Wear, in 1986 © PA

Attempts to attract a new wave of automakers such as Tesla and Rivian have faltered, while Britishvolt, which wanted to make batteries for electric cars, collapsed in January.

More importantly, long-term investors including Nissan and Toyota, which has a factory in Derby, are now questioning their future in the UK as the government aims to ban sales of petrol and diesel cars from 2030.

The foreign carmakers’ core concern is that Britain’s reputation as a stable and pragmatic place in which to manufacture vehicles has been shattered, initially by the 2016 Brexit vote, and more recently by last year’s political turmoil at Westminster.

“They are asking whether the UK is a stable partner,” said one person close to the Japanese companies.

Line chart of mn of units produced showing UK car manufacturing has slumped

This comes as other European countries have been racing to secure investments in electric vehicles, while the UK falls behind.

“This is a once-in-a-generation transition, and those investments are taking place now,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, the trade body for UK carmakers.

Jaguar Land Rover, Nissan and Toyota — which between them account for seven out of 10 cars made in the UK last year — all face crucial investment decisions this year related to electric vehicles.

“All of those decisions are pivotal,” said one senior industry figure. “We are at an inflection point.”

JLR owner Tata Motors is due to decide within weeks whether to build a battery factory in the UK or Spain to supply the carmaker’s new range of electric vehicles.

The Indian company has asked the UK government for more than £500mn of financial support in order to choose the UK over Spain, according to people briefed on talks between the two sides.

JLR is the largest employer in the UK auto sector, and Tata is examining a partnership with Chinese battery maker Envision that would involve the Asian group building and running a factory in Somerset. Tata declined to comment.

Bar chart of (’000s) showing Jaguar Land Rover produces more than 25% of UK-manufactured cars

Meanwhile, Nissan has to decide whether to use its Sunderland factory to build a replacement for its petrol engine Juke car, which is manufactured at the plant but is due to be phased out by the middle of the decade, said people close to the situation.

Nissan will also decide whether to make another electric car in Sunderland, in addition to the planned replacement for the electric Leaf car that it manufactures there. Nissan declined to comment.

But Ashwani Gupta, Nissan chief operating officer, said last month the UK was “more and more challenging as a manufacturing footprint” because of rising energy costs.

Toyota will make a decision on its next Corolla hatchback, the sole model made at its Derby plant, said people familiar with the matter.

About 90 per cent of the vehicles made at Derby are powered by a hybrid petrol-electric engine, and if the company chose not to make the next Corolla model in the UK, it might spell the eventual closure of the factory, added these people.

Matt Harrison, head of Toyota’s European operations, said last year that UK government rules that might ban sales of hybrid vehicles from 2030 risked “penalising us when I think we’ve done such a good job leading the way on emissions reduction”.

He stressed Toyota’s looming investment decision and the hybrid rules were not directly linked, but some analysts said it was hard to see the company building a new model in Derby from around 2026 that it would be unable to sell locally just four years later. Toyota declined to comment.

Toyota’s plant in Burnaston, near Derby
Engineers working on the production line at the Toyota plant in Burnaston, near Derby, UK © PA

Nissan and Toyota want clarity on the UK government’s vision for the car industry in the future.

“Understanding what the long-term industrial plan is, is something we would welcome,” said one person close to the companies.

Securing this clarity has been made harder by the recent political tumult at Westminster.

Rishi Sunak has shown significantly less enthusiasm for the UK auto sector than his predecessors, privately questioning the need for the government to support carmakers, according to two people who have heard the prime minister’s comments.

Last summer, as chancellor, Sunak recorded an address for the SMMT annual conference that lasted less than two minutes — a brevity that was met with stunned silence by the audience.

A government spokesperson said: “The prime minister froze or cut fuel duty every budget he delivered as chancellor, allocated hundreds of millions to the car industry to help with the switch to electric vehicles and last week announced measures to help manufacturers with their energy costs. He is pro-car and pro car manufacturing.”

The UK car industry is painfully aware that the series of inward investments that underpinned its revival have left it reliant on decisions taken in boardrooms outside Britain.

Cars being manufactured in Jaguar Land Rover’s facility in Solihull, Birmingham, UK
Cars being manufactured in Jaguar Land Rover’s facility in Solihull, Birmingham, UK © Matt Crossick/Empics/PA

Setbacks such as the closure of Ford’s engine factory in Bridgend in 2020 and Honda’s car plant in Swindon in 2021 have served to dent the sector’s confidence.

Securing investment is “about mojo and momentum, and we have lost it”, said one figure close to the industry.

There are some bright spots. BMW, the German carmaker that acquired UK carmaking operations, including the Mini in the 1990s, is expected to announce a new electric model that will be made in Oxford.

Ford said last year it would spend £150mn to transform its components plant at Halewood on Merseyside to make parts for electric vehicles.

But one critical source of concern is the UK’s stalled efforts to nurture large-scale manufacturing of batteries for electric cars.

Excluding Britishvolt, which has been bought by an Australian company that wants to initially focus on batteries for energy storage, the UK has less planned production capacity than nations including Portugal and Norway.

While importing completed batteries is not necessarily a problem — Volkswagen ships them from Northvolt in Sweden to its German factories — the UK’s seeming inability to develop domestic production is an issue.

“We have a massive problem in this country . . . we are great at science, but don’t get it to industrialisation,” said one person involved with auto start-ups. “Britishvolt proves that we are still shit at that.”

Convincing more start-ups to manufacture in the UK is becoming crucial to bolstering the size of the British carmaking industry.

If foreign carmakers with UK operations pull investments, it could trigger a downwards spiral for the sector.

Carlos Tavares, chief executive of Stellantis, which has van plants in Luton and Ellesmere Port, has repeatedly warned that government policies that force motorists to buy electric cars will price many people out of owning a vehicle.

“If the size of the market goes south, the ability of the UK to have a supply base in auto is very limited,” he said.

Additional reporting by Jim Pickard


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