With the worst of COVID-19 apparently behind us, and a belief that the chip-crisis would be resolved, 2022 was expected to see the UK automotive industry accelerate away from the downturn of the last two years.
A full year of production for the new Nissan Qashqai and the Range Rover, as well as the launch of the new Range Rover Sport, should have helped vehicle production climb towards and hopefully over one million units again. However, several factors mean that UK car and van production will now struggle to even meet last year’s disappointing figure of 917,000: geopolitical problems and economic headwinds, manifest in the cost-of-living crisis; the slower-than-expected start at new chip-production facilities, and delays in full production rates for the new Range Rover models.
Lower than expected production is not helped by continued disappointing Jaguar volumes and the end of Astra production in April, with the replacement electric van not coming on stream until next year. Car sales are similarly affected, with importers facing a shortage in new car availability, as much as domestic suppliers – some second-hand cars now sell for more than the official list price for new vehicles in that model.
And while the industry struggles to recover to recent levels of ICE-powered vehicle-production, it also has to transition to electric vehicles. Car plants need heavy investment to make electric vehicles as well as develop a new supply chain, for batteries, motors, and power electronics, but this is only slowly being established in the UK. While Nissan’s battery supplier, Envision, and Ford deciding to make electric motors in Halewood are very welcome investments, they're only two of the many investments required. And, more significantly, if the UK doesn't win this investment soon, vehicle manufacturers here will have no choice but to source EV systems internationally. With an increasingly international supply chain, and rising logistics costs, retaining domestic vehicle production will prove even more challenging than it is now.
Supply lines: streamlining or outsourcing
Many industry commentators are confident that batteries must be sourced from facilities close to the vehicle assembly plants. This may be true for the delivery of fully assembled batteries: large, heavy, and consequently challenging to transport long distances, but it's not necessarily always the case. In the supply of cells (as opposed to fully assembled batteries), there are already many long-distance supply chains in operation across Europe: Volkswagen and BMW, for example, source cells from Sweden, transported across Europe for assembly close to the car plants themselves. What’s economic and practical for the Germans ought to be workable for UK vehicle plants.
Nissan through its partner, the Chinese company Envision, has located a fully integrated battery plant (including making cells) next to its Sunderland factory. However, fully assembled batteries for Mini come from Poland, via Munich, and there's still no certainty on where Jaguar Land Rover (JLR) will source batteries for the forthcoming electric Range Rover and Range Rover Sport. With an imminent production start it wouldn't be surprising if these vehicles started life with batteries, or at least their cells, sourced outside the UK, before being fully assembled in the UK. Batteries for the new Stellantis van will be sourced from outside the UK, first with cells from China assembled into batteries in Spain, and later from the new network of Stellantis cell and battery plants being established now.
The potential overseas sourcing of batteries or cells for JLR – as is already the case for Mini – highlights an inherent weakness in the UK automotive supply chain sector, namely the lack of domestic suppliers ready to invest in supporting the transition to EV production. Cell and battery production is dominated by non-UK companies, especially Chinese and Korean entities – the bullish optimism of Britishvolt and numerous smaller companies supported by the government’s automotive transformation fund (ATF) notwithstanding.
The urgency of electric-vehicle production
So, 2022 is the year of hoped-for recovery in automotive production for the current sector. It's also the year in which the country needs to see significant progress in the reorientation of the sector to EVs, notably battery assembly, cell-production, and motor-production and assembly. Some initial steps along this road have been made, but these are insufficient for the industry to achieve the necessary scale to be competitive in the new world order of EV production. Government support can help, although the flagship Automotive Transformation Fund (ATF) risks allocating funds too thinly, across large numbers of small operations rather than supporting the build-up of globally competitive companies.
And this is perhaps the crucial issue. There's a deep-rooted fear of or reluctance to be seen as picking winners, given this policy's reputation for having failed in the 1960s and 1970s era of industrial intervention. Such fears or reluctance may well be reasonably grounded, but the UK either needs to support its own potentially world-leading players, and retain them – and their decision making – in the country, or it needs to support global leaders from outside the UK to invest in the automotive manufacturing sector.
The former may be ideologically difficult for the current government, and relevant domestic companies may not exist, meanwhile the latter approach – attracting leading global players – was central to the 1980s revival of the automotive sector, when a conservative government successfully attracted Nissan, Honda, and Toyota to the UK. Attracting similar companies, or yet more investment from the two, Nissan and Toyota, who remain may be the only viable route to follow.
For more insight and guidance, get in touch with Ian Henry.
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