Britain’s car industry is in an existential crisis – but don’t blame Brexit

The real problem facing the UK car industry is that it has emerged from the threats posed by Brexit and Covid and a long halt to ‘continuous improvement’ in a hazy period between the twilight of the combustion engine and the full dawn of electric vehicles.

There are two chicken-or-egg situations – one around the demand for electric cars and the other around how they are built – that need to be resolved. Normally, one would expect the market to simply understand these issues. But the state has at least partly precipitated both – setting an artificial deadline for net zero and prolonging uncertainty around Brexit – and will therefore have to help resolve them.

The UK bans the sale of new petrol and diesel cars by 2030. Figures released on Monday showed new car registrations in the UK fell 20.6% to 124,394 units in the second Weakest May since 1992. (Worst May was when the country was in lockdown in 2020 and therefore doesn’t really count.)

The drop, from the first full month of showrooms reopening in May last year, demonstrates the impact of continued disruptions to the global supply chain, but is also the result of households at Cash-strapped refrain from making big purchases, especially when the choice is between a petrol or diesel car, which will soon be obsolete, and an electric vehicle which they may struggle to charge.

As SMMT boss Mike Hawes says, “To… stimulate a robust mass market for these vehicles, we need to make sure that every buyer has the confidence to go electric. This requires accelerating the deployment of accessible charging infrastructure.

At the same time, traditional manufacturers are struggling to reconfigure their product lines and supply chains. Battery-powered vehicles have far fewer moving parts, which has greatly increased the importance of localized production. New rules of origin requirements meant carmakers had to prove that 40% of the value of parts in a finished car had been produced in the UK or EU before they could be exported to the Continent .

This threshold increases to 45% next year and 55% in 2027. Batteries typically represent around 50% of the total value of an eclectic car. Plus, they’re really heavy. Those of the Nissan Leaf weigh around 300 kg, while those of the Jaguar i-Pace weigh around a ton. The result is that the batteries have to be manufactured very close to where the car is assembled.

Nissan, for example, is ramping up production in the UK after signing an exclusive deal with a battery producer called Envision, which has a factory near Sunderland. The problem is that there are not many Envisions. This is why the UK must do everything in its power to attract gigafactories to these shores.

The countries that win the race to increase battery production will be those able to generate the efficiencies and economies of scale that will allow them to sustain a meaningful mass automotive industry beyond the end of this decade. This is a sector that needs more than luck to continue to survive.