Table of contents
1. The transition to electric
1.1 EV battery production in the UK
As part of the transition to net zero, the UK government has announced that the sale of new petrol and diesel cars will end in 2030. This policy has led to a renewed focus on the UK’s ability to manufacture EVs, particularly its capacity to produce their batteries.
The UK currently has one confirmed battery plant or ‘gigafactory’, the Chinese-owned Envision site being built in Sunderland. Some commentators have argued that this is not enough. The Faraday Institution, an independent institute for electrochemical energy storage research, has estimated that by 2030, the UK will need five gigafactories, with demand rising to 10 by 2040. In 2021, the House of Lords Science and Technology Committee ran an inquiry on the role of batteries and fuel cells in meeting the government’s net zero target. It found that the UK needed to increase its battery manufacturing capacity or risk failing to achieve the target. In addition, the committee warned that automotive manufacturers could move overseas.
Debate on this issue intensified after the battery startup company Britishvolt entered administration in January 2023. The company had planned to produce hundreds of thousands of lithium-ion batteries a year. In May 2023, press reports suggested that the owner of Jaguar Land Rover, Tata Steel, is anticipated to build an EV battery plant in Somerset. BBC News has reported that government subsidies worth hundreds of millions of pounds would support the project, which has yet to be confirmed. Other press reports have speculated that EV car manufacturer Tesla could also build a gigafactory in the UK following comments by the company’s owner, Elon Musk, that it would “strongly consider” doing so.
1.2 The international picture
Recent analyses suggest EV battery production internationally, for instance in Europe, is increasing. This has led some, for example the Labour chair of the Business and Trade Committee, Darren Jones, to argue that the UK is falling behind. Similarly, Tom Stacey, senior lecturer in operations and supply chain management at Anglia Ruskin University, has argued that China, the US and Germany have “moved faster than the UK to attract and even build the necessary infrastructure and manufacturing capabilities” needed to meet the global demand for EVs.
Focusing on the EU, Professors David Bailey and Phil Tomlinson, from the universities of Birmingham and Bath, have argued that member states are “simply doing more to attract investment” than the UK, using “heavy financial support and special economic zones to woo manufacturers”. They highlighted that the EU has 35 EV battery plants open, under construction or planned. However, a recent report by the campaign group Transport and Environment suggested European “battery production capacity equivalent to 18mn electric cars—1.2 TWh—is at a high or medium risk of being disrupted or lost”.
Looking to the US, the impact of the Inflation Reduction Act (IRA), which offers incentives to companies to prepare and locate production and supply chains domestically, has been highlighted. The car maker Volkswagen has warned the EU that it risks losing investments because of the support offered under the IRA. The UK has received similar warnings, with Andy Palmer, chair of battery company InoBat, stating that the IRA should be a “wake up for the UK government that their incentives for investment have not been enough”.
1.3 Government policy
The government has said that battery manufacturing is a key priority and set out some of its support for the industry. In evidence to the Business and Trade Committee in February 2023, it said that it had implemented several schemes to assist the industry’s transition towards net zero, including the automotive transformation fund and the Faraday battery challenge. Through the fund, UK-registered businesses can apply for a share of up to £1bn for capital-centric investment projects that help industrialise the EV supply chain at scale in the UK. The Faraday battery challenge provides investment for research and innovation projects, as well as facilities, to “drive the growth of a strong battery business in the UK”.
The government also argued that there had been significant investment in the broader EV sector in recent years, citing Nissan and Envision’s £1bn investment in the manufacturing hub in Sunderland, Bentley’s £2.5bn investment in Crewe to develop EVs and Ford’s £380mn investment in its first European EV components site in Halewood.
2. Trade barrier concerns
2.1 ‘Rules of origin’ requirements
The car industry has raised concerns about the domestic supply of EV batteries. For example, in written evidence to the Business and Trade Committee, one of the world’s largest carmakers, Stellantis, referred to incoming post-Brexit trading rules. Under the UK’s trade and cooperation agreement with the EU, new ‘rules of origin’ requirements must be met for vehicles exported to the EU to avoid tariffs of 10%. From 2027, EVs must have 55% UK/EU content and a battery pack which has also met certain rules of origin criteria. With the battery typically accounting for half of the cost of each EV, the lack of domestic production is problematic. In addition, as around 80% of all vehicles produced in the UK are exported, mainly to the EU, a large proportion of the industry would be affected.
Stellantis told the committee that it would be unable to meet these new rules. It also argued that continuing to source batteries from mainland Europe or China would place UK plants at a competitive disadvantage. The company explained that if the cost of manufacturing became “uncompetitive and unsustainable”, manufacturers would relocate and cease to invest in operations in the UK. This would lead to “significant job losses, the loss of a skilled workforce” and have a negative impact on the UK economy. Stellantis called on the government to renegotiate its agreement with the EU in this area to address these issues.
On 17 May 2023, an urgent question in the House of Commons highlighted Stellantis’s concerns. Responding, Minister of State at the Department for Business and Trade Nusrat Ghani said that the government was determined to position the UK as one of the best locations in the world in which to manufacture EVs. Ms Ghani said that the government was leveraging investment from industry by providing government support for new plants and upgrades and argued that companies “continue to show confidence in the UK”. She also said that the government would continue to work through its automotive transformation fund to “build a global, competitive EV supply chain in the UK”.
The House of Commons Business and Trade Committee has launched an inquiry into the supply of batteries for EV manufacture in the UK. It also plans to consider the viability of battery manufacturing.