U.K.’s electric vehicle supply chain needs an electrifying jolt

electric vehicle charging
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Automotive producers the world over are facing challenges, but the U.K. automotive industry is arguably in the most challenging environment of all.
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U.K. automotive sector faces headwinds

Over the last year, COVID-19 restrictions have closed showrooms. Furthermore, Brexit has raised the prospect of trading tariffs with Europe. In addition, the government has repeatedly moved the goal posts on the sale of internal combustion engines toward the end of the decade.
A new trade deal with the E.U. allows tariff free access to the U.K.’s largest automotive export market. The announcement of the new deal on Christmas Eve proved a massive relief for the industry, according to Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), an industry body, as quoted in the Financial Times.
However, tariff-free does not mean barrier-free. Additional safety certification and much more onerous paperwork involved in the movement of goods between the U.K. and the E.U. will increase complexity for a U.K. supply chain intimately entwined with the E.U.

New clarity in 2021 for U.K. automotive industry

Nevertheless, the U.K. automotive industry is at least starting 2021 with better clarity than it endured through much of last year.
But one looming crisis the SMMT identified is the incomplete nature of the U.K.’s electric vehicle supply chain.
Specifically, the FT reports, the U.K. is going to need far more battery factories if it is to sustain a switch to electric vehicles in the decade ahead.

Low battery

Uptake of EVs has risen from some 3-4% in the late 1990s to 10% during 2020. Under current government targets, electric vehicles will account for 100% of all cars sold in the U.K. by 2030.
However, currently the U.K. has only one battery factory at Nissan’s Sunderland plant. Britishvolt plans to bring another plant onstream in Blyth by 2024. Combined, these two plants will have about 15 gigawatts of capacity, enough for 250,000 electric cars.
The SMMT estimates, however, some 60 gigawatts of battery-making capacity will be needed by 2030.

Sales struggles

The U.K. automotive market is having its worst year since 1992. New car sales reached just 1.63 million, a 30% fall from the year before. The decline marked the sector’s largest annual drop since 1943.
Diesel sales fell to a fifth of the market, mostly as short term 2- to 4-year lease vehicles and electric’s 10% share was split 6.6% as pure EV and 4.1% as hybrid.
So, Nissan and Britishvolt’s combined output of 0.25 million batteries would likely be just sufficient for the next couple of years as output recovers. A combination of pent-up demand and an accelerating switch to electric vehicles will see demand for batteries rise exponentially as the decade unfolds. Demand could rise to between 2.5 million to 3 million batteries to service new builds and replacements.

EV investment across Europe

Investment is finally coming on stream elsewhere across Europe.
Tesla is building a plant near Berlin. Northvolt has another planned at Skelleftea in northern Sweden. Another plant operated by LGChem in Poland is likely to come onstream by 2022.
However, the aforementioned facilities will focus firmly on supplying German, French, Italian and Swedish carmakers. Unless it is willing to be beholden on European suppliers, the U.K. needs to develop capacity of its own.
Nothing in life is a surefire bet.
But the transition to EVs this decade seems about as good as it gets. Boris Johnson’s government, now Brexit (such as it is) is done, appears to have a sufficiently supportive view for investors to expect at least loan guarantees — if not hard cash — to bring more tentative plans forward.
Whether they happen fast enough is another matter altogether.
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