As the Brexit saga lurches painfully into its next phase – that of hammering out a trade deal with the EU – media reports are examining the impact this could have on the UK’s automotive manufacturing industry. Heavily intertwined with EU supply chains and almost entirely owned by non-British companies, the implications for this high-profile, bell-weather sector are substantial. However, Brexit is just one of three hostile weather fronts encircling the poorly tethered structure supporting Britain’s once-mighty automotive manufacturing edifice.
Storm one – the Brexit pain barrier
According to Automotive News Europe, BMW has delayed development of the next-generation of the Mini amid cost cutting and Brexit concerns. BMW faces a two-pronged quandary when it comes to the cult British brand: firstly, its exposure to Brexit tariff risks on a range of models built largely in the UK (some low-volume niche models are built in the Netherlands), and secondly, the pressing need to update an ageing model line-up that leave it badly wanting under new CO2 emissions legislation being rolled out this year and next.
Meanwhile, an article in the Financial Times suggests that one of several Brexit contingency plans drawn up by Nissan is to focus its efforts on the UK in the event any future deal imposes trade tariffs on cars and car components. The theory behind that plan would be to gain competitive advantage over European manufacturers and increase its market share in the UK from its current level of around 4 percent to closer to 20 percent. Nissan denies the existence of such a plan, stating in the article that its entire business in the UK and the EU would be unsustainable under WTO tariffs.
Whether it constitutes a plan per se, it is highly likely that Nissan has indeed done this kind of arithmetic and batted around such notions in a strategy brainstorming session somewhere. But even in disruptive times like these, such a massive upswing in British desire for Nissan products would fly in the face of just about every brand-loyalty theory known to the marketing industry.
And like Mini, Nissan also has to contend with an ageing model range in the face of stiff penalties for exceeding new fleet emissions limits – which brings me to the second storm cloud on the horizon for UK car manufacturing – that of electric vehicles.
Storm 2 – building electric vehicles in the UK
A substantial amount of momentum is building behind the shift to electric vehicles. Consumers may not notice it yet in dealer showrooms, but the choice of electric vehicles (BEV) and electrified vehicles (assorted hybrid options) available to them is set to rise sharply over the next year or two. Unfortunately, the vagaries of future trading arrangements, not just with the EU, but with the rest of the world, severely nobbles the UK’s attractiveness as a manufacturing location for electric vehicles or key components such as batteries. In the face of emissions legislation in Europe and elsewhere, global vehicle manufacturers are under pressure to make investment decisions now, and against a far bigger backdrop than Brexit. Holding off until the UK manages to get its affairs in order is a luxury many manufacturers are unlikely to be able to afford – even if they want to.
A report published nearly a year ago by the government-funded battery research body The Faraday Institution identified major risks to the future of British car manufacturing predicated upon its ability to attract major investment in battery manufacturing. The UK is already home to Europe’s first and, for the moment, largest EV battery plant, Envision AESC, in Sunderland, which produces batteries for the Nissan Leaf. However, its capacity of 1.9 GWh is set to be eclipsed by a rapid ramp-up of capacity in the EU, backed by the European Commission and driven largely by concerted efforts from Germany, France and Sweden to catch up with Asian manufacturers. VW’s joint venture with Swedish company Northvolt in Salzgitter, Germany, is scheduled to begin producing 16 GWh of battery cells annually in 2023, and has just applied to increase capacity to 24 GWh. Opel is likewise aiming for 24 GWh of battery cell production at its Kaiserslautern plant in Germany – also starting in 2023. Tesla, meanwhile, is finalizing a deal to commence construction of a factory outside Berlin that will build vehicles and batteries. A production capacity of up to 500,000 cars has been bandied about. While these actions are being taken elsewhere, the UK is still just talking about how good it could be if it really wanted to.
The problem for UK plc is that almost its entire automotive manufacturing base is owned by non-British companies who would need a compelling argument to choose Britain as a manufacturing base for electric vehicles beyond sales volumes in Britain alone. There arises a chicken-and-egg situation for battery manufacturers which would be attracted to a location by a supply agreement or a JV. Right now, cautious Japanese manufacturers are treading a careful wait-and-see path not only on their commitments to manufacturing cars in the UK, but to the broader roll-out of EVs in global markets. On the whole, those manufacturers currently building cars in the UK in significant numbers are not the ones now leading the march to an electric future. One exception to that would be Vauxhall, now owned by PSA, which is rolling out electric and hybrid vehicles across its full range. And PSA is based where? Oh yeah, just across the channel in the EU, which is taking hard action right now to address its dearth of battery facilities.
Storm 3 – the car’s long-term future
The final storm front bearing down on electric car manufacturing is the long-term future of the privately owned car within a maelstrom of new mobility models emerging around the world.
Increasing urbanisation is squeezing hard on the practicalities, viability and desirability of individual car ownership. Not only is it a hugely expensive item for any household, it is also a very large one that spends 96-98% of its time standing around doing nothing, getting in the way and occupying valuable real estate. As society grapples with new approaches for moving ourselves from A to B, car makers are grappling with their own very identity, which, in Europe at least, is shifting towards the broader notion of being “mobility providers” rather than car manufacturers.
If, indeed, we have reached a state of “peak car” in developed European markets, car makers will have to radically reshape their manufacturing infrastructures. This could mean a massive reduction in the volumes of private cars sold to consumers and a shift to shared fleets of city cars, multi-occupancy vehicles and flexible use vehicles that can carry either people or goods. The UK’s ability to persuade non-British manufacturers to retain a presence on UK soil will depend heavily on the country’s capacity to lead such a societal and technological shift on the one hand, and to guarantee that costs and red tape are kept down.
A possible silver lining
One other option that shouldn’t be forgotten is that this upheaval could also be used by the UK as an opportunity to regain ownership of vehicle manufacturing. Critics have long asserted that start-ups such as Tesla cannot possibly win through against established manufacturers with their global infrastructures and decades of experience. Yet Tesla continues to prevail. Last year, British firm Dyson shelved plans to build its own electric vehicle (albeit not in the UK). But that doesn’t need to be the end of the story. With suitable backing, it would not be beyond the realms of possibility for the UK to stake a claim to new mobility models through driving innovation from within, rather than leaving the fate of its automotive manufacturing sector in the hands of non-British companies with precious little motivation to assist.
As we go it alone, this and future UK governments will absolutely have to make radical and substantial investments in forward-looking business and manufacturing models – and how we move ourselves and goods from A to B is one of the biggest there is.
Elaine Catton 