Everything is reminiscent of past Brexit disputes. But this time it is an industry of the future.
Electric vehicle batteries must, under the Brexit deal, source 60% of their value within the UK or Europe to qualify for duty-free trade from 2024, a threshold that jumps again in 2027. Too much foreign content, slang, and cars will face 10% tariffs.
The purpose of these rules was to force the development of a European battery industry and its long supply chain. This has not happened to the extent expected or required for automakers to comply with the rules, automakers on both sides of the Channel say.
“There are different constituencies, with different priorities here,” says trade expert Sam Lowe of Flint Global, noting that the battery and chemicals sectors stand to benefit from this onshoring. “But there has to be an extension [of the 2024 deadline]otherwise you will end up in the absurd situation where electric vehicles traded between the UK and Europe are subject to tariffs but petrol vehicles are not.”
The UK government says it has raised the issue with the EU. But for the automotive sector, this latest controversy should shine a spotlight on the lack of effective planning of battery production and supply chains in the UK, at least according to an extraordinarily sombre parliamentary hearing last week. The UK is a “bystander in the global battery arms race,” said Simon Moores, of Benchmark Mineral Intelligence.
The US and, increasingly, the EU are pouring money into securing the critical minerals needed for batteries and the refining, processing and chemical plants needed to produce them. It is a supply chain, which from lithium refining to the production of cathode, anode or battery electrolyte, is currently dominated by China, with a global market share of more than 70% in most of its phases.
The visible tip of this iceberg are the gigafactories that produce the ultimate battery pack. Europe, Stephen Gifford told the Faraday Institution last week, has 30 in the pipeline, compared with the UK (or maybe two). Faraday estimates that UK demand, more than half of which will come from private cars, could require 10 new gigafactories by 2040 each with a capacity of 20GWh, compared to the UK’s current total capacity of 2GWh.
The UK has not successfully struck deals with established Asian battery makers to build here, nor has it cultivated riskier startup options, as Britishvolt’s bankruptcy has shown. Last week Germany has pledged hundreds of millions of euros in grants to secure a Northvolt project, after the Swedish company said it could prioritize the US.
Gigafactories alone won’t cut it, as carmakers’ Brexit angst shows. To qualify for future duty-free treatment will require more chemical processes and manufacturing steps to occur locally, before the final battery is assembled.
Car production is likely to migrate wherever possible over time. Just as automakers want to be close to gigafactories, gigafactories want close proximity to the midstream, which in turn wants reliable sources of raw materials and refined products. In effectively building a new industry from scratch, everything has to happen together.
The UK, according to experts last week, is just getting started. The country “doesn’t have a runner in this race,” Moores said, while a fellow panelist described the government’s critical minerals strategy as a “wish list with no substance in terms of funding.”
Jeff Townsend, of the Critical Minerals Association, applauded the government’s newfound, albeit belated, appreciation of the issue, but memorably added: It really happened.”
This will resonate with other industries frustrated by endless consultationsan absence of coherent long-term planning or industrial strategy and an ideological reluctance to put money behind the aspirations.
For UK automakers, the question isn’t really whether they can meet this set of Brexit requirements. It is whether there is much chance that the UK battery sector develops sufficiently to help it meet the next ones.
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