UK automotive industry calls for protectionist policies

UK automotive industry calls for protectionist policies



The UK already produces many electrified vehicles, including the Nissan Leaf

SMMT warns that the UK's ability to compete globally is at risk without government support

The British car industry has warned that it can't compete with rival nations on EV production unless the UK government provides urgent support.

The call made by the Society of Motor Manufacturers and Traders (SMMT) points to the impact of protectionist trade policies introduced by competing nations, such as the US’s $369 billion (£309bn) Inflation Reduction Act.  

Introduced in August 2022, the Inflation Reduction Actoffers manufacturers large subsidies for EVs built in the US: up to $7500 (£6250) for plug-in hybrid and electric cars in which the batteries pass minimum local content requirements through materials mined or at least refined in the US.

For commercial vehicles, this rises to $40,000 (£33,000). This prompted struggling EV start-up Arrival to shift its production focus from the UK to the US, taking advantage of the huge incentives on offer in a bid to save its business.

Large manufacturers are also reconsidering their plans in response to the Inflation Reduction Act, with plants reportedly at risk including Tesla’s Berlin gigafactory and Volkswagen’s planned plant in Eastern Europe.

Volkswagen is said to be weighing up a potential $10 billion (£8.3bn) in federal support if it chooses to build batteries in the US. 

The European Union now threatens to heat up the competition with its own draft law – expected to be published tomorrow (14 March) – setting targets for localised battery production stimulated by an increase in financial support and a reduction in red tape.

Without its own protectionist policies, the UK risks becoming unattractive to potential investors and manufacturers, the SMMT has argued.

The organisation has now set out a blueprint for the UK to become a leading location for EV manufacturing, with policies intended to stoke investment, reform regulations and increase global diplomacy.

Key to the former is reducing the risk for private investors, which the SMMT argues can be achieved through more generous incentives, support to ensure competitive energy costs and greater subsidies for renewable energy projects, among other means. 

Government spending on the automotive industry has been a controversial subject. Collapsed battery business Britishvolt was promised £100 million in grants but failed to ‘unlock’ the money by meeting development milestones before it went bankrupt.

However, the tide may be changing: the government is reported to have provided £75m in grant funding to the BMW Group to help safeguard the future of Mini’s Oxford factory.

It's yet to provide support on energy costs, however, despite the SMMT finding that UK car manufacturers’ spend jumped by 50% or £100m last year.

As for legal reform, the SMMT argues that the government should follow Spain’s policy of automatically approving solar projects below 150MW and wind farms below 75MW, which it claims could halve the development time of such enterprises.

The price of electricity and renewables must also be separated from gas, says the SMMT, to enhance long-term energy security and lower costs for industry.

On the global stage, the UK should expand its free-trade agreements for tariff-free exports of British vehicles, batteries and battery components.

Partnerships with mineral-rich countries – such as Australia, Canada and Indonesia – should also be established to safeguard the UK’s supply of the raw materials required to manufacture batteries, namely lithium, cobalt and nickel.

The UK currently has agreements in place with Australia, New Zealand and the EU, while talks with Canada, Mexico, Israel, India, the Gulf Cooperation Council, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and South Korea are currently in progress.

Inaction could lead to industrial restlessness, added the SMMT.

SMMT chief executive Mike Hawes said: “The UK is already a significant producer of battery-electric and electrified vehicles, manufacturing zero-emission cars, vans, buses and trucks. Underpinning vehicle production across the UK is an equally diverse supply chain, one which must also make the switch.

“But that transition needs investment and for that we must be competitive, build on our strengths and match the best the world has to offer. We can't ignore the fact that other countries and blocs are powering up their political and economic backing for their own automotive sectors. The US has announced a $2 trillion package of measures in pursuit of clean technology, including its flagship $370bn Inflation Reduction Act.

“The EU is proposing a Green Deal Industrial Plan, easing restrictions on State Aid for these essential investments. Other countries, especially those in Asia-Pacific, for instance, already have a head start in battery production.”

Full Article