Britain’s car industry is in crisis. But don’t blame Brexit

Vehicle makers can no longer stand still but need to attract gigafactories to ensure a future in electric

In 1986 Margaret Thatcher painted an eye on a Japanese daruma doll, a traditional symbol not just of luck but also perseverance, in the new factory Nissan was building just outside Sunderland. It marked the renaissance of an industry that had been beset by incompetence and industrial strife. Just over 35 years on, the charm appears to be wearing off as the UK’S car industry faces yet another existential crisis.

Car manufacturing is a totemic industry in the UK and one of the last big links to the country’s manufacturing heritage. The regular curmudgeonly complaint that Britain doesn’t make anything anymore can swiftly be countered with a quick nod to the near-350,000 Qashquais, Jukes and Leafs that roll off Nissan’s hyperefficient, state-of-the-art production line in the North East each year. Cars remain the UK’S number one export. But for how much longer?

The UK’S car manufacturers have faced four huge roadblocks in quick succession.

First they only just managed to swerve the worst form of Brexit which would have resulted in tariffs being placed on exports. Then they got into a fender bender with Covid that resulted in factories being shut down and supply chains becoming gummed up. Now they are having to make evasive manoeuvres to avoid head-on collision with an imminent recession and the drive towards net zero.

Much has been made of Thatcher’s pitch to Japanese carmakers, which sold the UK as a beachhead into the common market.

But that was only ever part of the deal. She also offered tax breaks to encourage investment and presided over a booming economy that boosted demand. The UK became an enormous market in its own right. The Bavarian nickname for Großbritannien is Treasury Island because one in five cars built in Germany ends up here.

One of the most important concepts that Japanese carmakers brought with them to the UK was kaizen, which roughly translates as “continuous improvement”. It is thought that this is one of the reasons why productivity in the industry between the financial crisis and 2015 increased by 30pc even as it flatlined in most other sectors.

But following the Brexit referendum, the UK Government and car industry essentially became locked in a long-running debate about maintaining the status quo. Having at the last possible minute achieved that aim and avoided the imposition of margin-destroying tariffs on exports to the EU, there is now a dawning realisation that standing still is patently not good enough.

In July last year, Honda closed the doors on its Swindon factory after 36 years with the loss of 3,000 jobs. Brexit was the obvious culprit especially given how vocally Honda had opposed it. But industry experts pointed out the plant had been struggling for some time. Analysts believe that car plants need to produce roughly a quarter of a million cars a year in order to achieve the required economies of scale. Swindon was struggling to produce roughly 160,000.

The real issue facing the UK car industry is that it has emerged from the threats posed by Brexit and Covid and a long cessation of “continuous improvement” into a fuzzy period between the twilight of the combustion engine and the full dawning of electric vehicles.

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

The UK is banning the sale of new petrol and diesel cars by 2030. Figures out yesterday showed that new UK car registrations fell by 20.6pc to 124,394 units in the second weakest May since 1992. (The worst May was when the country was in lockdown in 2020 and therefore doesn’t really count.)

The decline, compared with the first full month of reopened showrooms in May last year, demonstrates the impact of continued global supply chain disruptions but it is also the result of cash-strapped households holding off from making big purchases, especially when the choice is between a petrol or diesel powered car, which will soon be obsolete, and an electric vehicle they may struggle to charge. As SMMT boss Mike Hawes says: “To … drive a robust mass market for these vehicles, we need to ensure every buyer has the confidence to go electric. This requires an acceleration in the rollout of accessible charging infrastructure.”

At the same time, traditional manufacturers are struggling to reconfigure their product lines and supply chains.

Battery vehicles have far fewer moving parts, which has significantly elevated the importance of localised production. New rules of origin requirements meant that carmakers have to prove that 40pc of the value of the parts in a finished car were produced in the UK or the EU before they can be exported to the continent.

This threshold rises to 45pc next year and 55pc in 2027. Batteries tend to make up about 50pc of the total value of an eclectic car. What’s more, they’re really heavy. Those for the Nissan Leaf weigh about 661lbs (300kg), while those for the Jaguar i-pace come in at roughly one tonne. The upshot is, batteries need to be made very close to where the car is assembled.

Nissan, for example, is increasing production in the UK after signing an exclusive deal with a battery producer called Envision, which has a plant near Sunderland. The trouble is, there aren’t many Envisions around.

This is why the UK needs to do everything it can to attract gigafactories to these shores.

The countries that win the race to scale up battery production will be the ones that are able to generate the efficiencies and economies of scale that ensure they can maintain a meaningful mass-market car industry beyond the end of this decade.