Battery failures like Johnson Matthey risk leaving British carmakers disconnected

The end of the internal combustion engine was one of the goals identified by Boris Johnson before Cop26.

The climate summit in Glasgow has delivered in part – some manufacturers and a few big countries said last week they would end sales of fossil fuel cars by 2040. Neither Volkswagen nor Toyota, the world’s two biggest carmakers, signed up, because of concerns over electric charger availability in poorer countries, but nevertheless the path is clear. Petrol and diesel are on their way out. Battery electric cars are on the way in.

Surprising then, that Johnson Matthey, the FTSE 100 chemicals company, announced on Thursday that it was ditching plans to expand in the lithium-ion battery market. For years the FTSE 100 company had touted its bespoke battery technology as the perfect replacement for its revenues from catalytic converters for diesel cars – almost two-thirds of its sales. Now it says it will try to sell the business, abandoning one factory in Poland and another planned for Finland.

The company’s retreat – accompanied by the “retirement” of its chief executive, Robert MacLeod – suggests the blue-chip company’s vision for the future is no longer so clear. Further breakup of the business, a few years past its 200th birthday, is a serious possibility, say investment bankers. Without a compelling growth story, Johnson Matthey might itself be advised to hire bankers to prepare a defence against the well-funded private equity firms that have already made light work of a series of British engineering stalwarts.

Beyond the implications for one of Britain’s oldest listed companies, the signal it sends for UK industry is not welcome. Johnson Matthey points out – accurately but belatedly – that battery manufacturing is a scale game, and that rivals are far ahead. China, Korea and Japan have a huge lead. The EU and US have also woken up, and are investing in new “gigafactories” at a rapid pace.

In the UK, the government-funded Faraday Institution suggests carmakers will need annual battery output of about 140GWh by 2040 to sustain the car industry at anything like its current economic heft. There has been one verifiable success so far: Chinese manufacturer Envision’s promise to make 38GWh a year in Sunderland. Startup Britishvolt is gaining momentum to fund another. Yet some observers are sceptical that the UK will ever come close to what the government hopes – suggesting the car industry could shrink rapidly.

There is some cause for hope, not least in the UK’s undisputed academic excellence. It is by now a well-worn trope within industry that the UK (or rather academics at the University of Oxford) gave the world the lithium-ion battery, but it was Japan’s Sony that brought it to market. Now UK scientists (including, still, those in Johnson Matthey within a separate division) are among those racing to produce a solid state battery – likely to be the next step up in the crucial search for energy density – and government-funded bodies are poised to commercialise any technology that does emerge from the lab.

But, as senior officials point out, Britain can ill afford to wait a decade for the next generation of batteries. Carmakers are making their investments now, and once those relationships and supply chains are lost, they are not easily regained.

Most economists use a gravity model of international trade: the closer and bigger two businesses are, the more they are likely to trade. Decisions like Johnson Matthey’s will not destroy the UK automotive industry by themselves, but every time someone decides not to invest in the sector, the UK’s gravitational pull on new investment wanes.

Bright sparks amid the gloom at M&S

Marks & Spencer gave its long-suffering shareholders an early Christmas present – and some hope – last week as it put the financial turmoil of the pandemic behind it. Annual profits were, it said, going to be a respectable £500m as shoppers returned to its clothing departments and food halls.

Jaded followers of M&S, with its record of false dawns, may have trouble believing their ears. But credit where