Stellantis shows that the future of the UK auto sector depends on more than just a Brexit review

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“If the cost of manufacturing electric vehicles in the UK becomes uncompetitive and unsustainable, operations will shut down,” carmaker Stellantis said in a parliamentary consultation on the future supply of electric vehicle batteries in the UK. .

The first challenge, and the one that will receive the most attention, is that the requirements of the Brexit deal could add 10 percent tariff to cars traded between the UK and Europe from 2024.

But Stellantis, which makes electric vans at its Ellesmere Port factory in Cheshire, was also making a broader point: The UK car industry faces a future in which it will find it increasingly difficult to compete.

The tightening of the so-called rules of origin under the Brexit agreement is a problem for car manufacturers on both sides of the Channel. (This could, Brexit fans, actually be a situation where Mercedes and BMW pressure European governments to take action.) Starting in January, electric vehicles must source 45 percent of their content within the EU and the UK, and batteries 60 percent, to qualify for duty-free trade.

The European battery industry has simply not developed to the extent that it can be, say carmakers. The cost of some key products also skyrocketed after the Russian invasion of Ukraine. Most of them can’t be sourced locally, or non-originating in the jargon, and their higher costs have skewed automakers’ assumptions. (To further complicate matters, the tariffs would increase the costs of EVs just as separate UK sales targets require manufacturers to steadily increase the share of zero-emissions vehicles in their total sales.)

The EU may have an incentive to delay stricter requirements. With 30 gigafactories to make batteries in the pipeline, its industry is further developed than the UK, somewhat I wrote about earlier this week.

Their automakers should ultimately benefit. Still, industry sources say the European Commission is wary of cutting rules designed to force battery manufacturing into Asia.

Either way, the UK has a longer-term problem. Stellantis noted that the “higher logistics costs” of importing batteries from abroad would put UK carmakers at a competitive disadvantage, meaning production would be shifted overseas.

UK government aversion to industrial strategy it has certainly slowed down the development of battery manufacturing. But the huge increase in energy intensity from making internal combustion engines to battery electric vehicles also means high energy costs in the UK, long a problem for heavy users like the steel sector. They are also becoming a serious problem in the automotive industry.

Nissan’s generally more subdued contribution to the same inquiry noted that energy costs had become “particularly impactful on the UK’s international competitiveness”. Industry body SMMT said its members reported electricity prices were more than double levels at other EU vehicle plants, with gas prices 60 per cent higher, calling this “critical”. for the development of the UK sector.

One complaint is that while battery manufacturing qualifies for the support available to energy-hungry industries, automakers do not. Regardless, the support offered has historically not reached the levels available on the continent. UK Steel notes that discounts available on wholesale electricity prices are £120 per MWh in Germany (and more generous) compared to £185 per MWh in the UK. The trade body says the industry pays £15 per MWh in grid charges in the UK, compared to £1 in Germany and even less in France.

Government in February he said he would consult into a “British Industry Supercharger” that promises to address this, but the country has a long history of allowing its manufacturing industries to shoulder higher costs. The relative energy costs are expected to play a key role in Tata Motor’s impending decision on whether a battery factory for Jaguar Land Rover comes to the UK, according to David Bailey of the University of Birmingham.

Addressing the Brexit deal’s rules of origin is just one stage in the race to secure a share of the battery-vehicle market. It’s a race that the UK starts at a considerable disadvantage.

helen.thomas@ft.com
@helentbiz