Yahoo Finance How Britain's electric car revolution took a wrong turn
When Margaret Thatcher opened Britain’s first Nissan plant in 1986, it was a new dawn for the British car industry.
The factory was “confirmation from Nissan after a long and thorough appraisal, that within the whole of Europe, the United Kingdom was the most attractive country – politically and economically – for large scale investment and offered the greatest potential,” said Thatcher in a speech officially opening the plant.
After a years-long courtship, she had persuaded the company to set up a manufacturing hub in Sunderland, in a major political coup that revitalised the domestic industry.
Now, however, car makers are going into reverse. UK production of cars has tumbled from 1.7m per year to just 866,000 this year, according to figures from the Society of Motor Manufacturers and Traders.
Britishvolt, an electric car battery start-up once hailed by Boris Johnson as the leading force in the battle to remain relevant, came to the brink of going bust last month after struggling to raise cash.
The malaise is a product of political uncertainty, the legacy of the Covid pandemic and lingering microchip shortages, the SMMT says. A looming recession is now set to test the industry “to the core”.
As the electric car revolution dawns, Britain’s vehicle manufacturers are on track to return to the doldrums of the 1970s rather than seizing the opportunities in front of them. So where did it all go wrong?
No time to waste
With a government-imposed ban on the sale of petrol and diesel cars due to take effect in 2030, there is precious little time left for the industry to not only reverse its decline but also reinvent itself for the battery-powered era.
A report by the Faraday Institution, which was set up to monitor progress towards this goal, warned this summer that while the UK had so far sent positive signals to investors, “more needs to be done, and quickly”.
Failure will result in the country’s once-successful car making industry being largely consigned to the scrap heap.
That would leave Britain reliant on imports from other big producers such as China, the US and Europe, which have raced ahead with the help of big state subsidies.
There is still time to reverse the trend. But to replace assembly lines centred around internal combustion engines and claim a stake in the future, Britain needs to build battery factories – and fast.
Batteries – because of their weight and high value – are expensive to transport, meaning they must be sourced locally. Almost every other part of the electric car supply chain will be built around so-called “gigafactories” that produce batteries, with manufacturers co-locating facilities to reduce costs.
However, the sorry saga of Britishvolt illustrates how Britain’s efforts to become a thriving hub for manufacturing electric vehicles have so far stalled.
The startup’s £3.8bn plan to build Britain’s first gigafactory in Blyth – lauded by Johnson when he was Prime Minister – has been pushed to the brink by a funding crisis. A fortnight ago it was on the verge of calling in the administrators.
While Britishvolt had won praise from the Government and been assigned £100m in grant funding, the company had not yet reached the milestones required to unlock the public money.
That left executive chairman Peter Rolton hammering the phones to save Britishvolt. He called 150 potential investors in just a day as the cash crunch hit, keeping a record of his progress in a notebook emblazoned with the words “keep going, never give up.”
Entreaties to Grant Shapps, the Business Secretary, were ignored, with his officials refusing to release a £30m tranche early. Rolton couldn’t even get a meeting with Shapps.
It left hopes for a national battery champion, 3,000 jobs and the seeds of a home-grown success story suddenly looking shaky – and all for the sake of what was, to Britishvolt, a rounding error in the Government finances.
By lunchtime Rolton dared to hope he would get what he needed to save his business and keep its dream of building the UK’s first battery “gigafactory”. Ultimately, the company secured a five-week lifeline.
Half a century of success
Governments around the world are jostling to secure gigafactories for their own car industries. But in interviews with the Telegraph, academics, business figures and politicians raised concerns that there is still a worrying lack of urgency in the UK.
“We're on the precipice and we're staring into the abyss”, says Andy Palmer, a seasoned executive who worked at Japanese car giant Nissan before running the luxury British car maker Aston Martin. “It really is do or die.”
As many supporters point out, the UK's car industry has strong roots built on some of the most famous brands in the world. It gives the sector a strong platform to build on.
The post-war government owned the steel industry and, in an effort to rescue the country’s battered economy, it demanded that up to 75pc of cars be made for export, leading to a boom for the industry and for British exports. Marques such as Mini, Land Rover, Austin, Triumph, Jaguar, Morris and MG became household names around the world.
Money poured in – and, for a period, this allowed Britain to be at the cutting edge of car development. Our successes included novel inventions such as the Rover JET1 gas turbine powered car, the world’s first. British car makers dominated the Le Mans 24-hour contest in the 1950s, with Jaguar and Aston Martin motors winning six in 10 races.
By the late 1970s, however, the industry was flagging, plagued by strikes, poor production quality and rising competition from Japan and Germany.
After coming to power in 1979, Margaret Thatcher sought to put this right, by forcing existing national giant British Leyland to become more efficient and bringing in more competition from abroad. Hard-nosed Leyland boss Michael Edwardes – known as the “poison dwarf” by employees – cut the workforce in half but still maintained 80pc of production, closing loss-making MG and forcing other brands to pay their own way.
A major part of Thatcher’s plan also involved attracting investment from Japanese manufacturer Nissan, by pitching Britain as a business-friendly staging post for making cars that could be sold en masse to neighbouring Europe.
The government made the former RAF Usworth aerodrome available for development as part of its deal in Sunderland. Thatcher also ensured Nissan was allowed to claim tax relief for plant machinery, a policy that was set to be phased out by Chancellor Nigel Lawson.
Today Nissan’s Sunderland plant is regarded as an undisputed success story, employing 6,700 people and producing 246,000 cars last year alone. The company vies with Jaguar Land Rover for the top spot in UK car production.
Best of all, the wages are good: the average pay packet for a Nissan worker is about £46,000, compared to Sunderland’s median salary of £28,100.
Graeme Miller, leader of Sunderland council, says Nissan's operations are vital to Sunderland, and to the Northeast.
"I will gently suggest they are to the whole of the UK economy,” he says.
The deal works because everybody gets what they need, Miller says. Nissan gets a skilled workforce and plant, workers get better-than-average pay, and Britain gets a valuable source of exports.
The most recent testament to this success is Nissan’s decision to build a new gigafactory next door. This was the fruits of groundwork laid two and a half years before, according to Miller. “We kept at it,” he says.
“Right at the very end, the Government came in with a little bit of money to get it across the line”.
Government help is a common theme in motor plant success stories. Lord Heseltine, a veteran Cabinet minister under both Thatcher and John Major and a former president of the Board of Trade, says the interventions to woo Nissan 40 years ago ostensibly conflicted with Thatcherite, free market policies but that “any government would have done that to secure an investment on that scale”.
“These were huge investments with very well paid jobs,” he says.
“We had the sites that were available and we had the skilled workforce, and we saw an argument that as part of the single European market, we were the best place for the Japanese to base their investment.
“The Government was deeply involved in the dialogue to bring big investment into the country. All governments do it and it would be unforgivable if they didn't.”
With the tectonic plates of the automotive industry shifting once again, there are calls for ministers to take a similarly muscular approach in the new battle to ensure Britain is not left behind.
This year just one in ten cars bought in the UK were made here. The proportion for electric car sales could be even slimmer based on our current trajectory.
Car makers have faced a succession of challenges in recent years, “each unprecedented and posing its own threat to the sector”, according to Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT).
A lack of investment caused by years of uncertainty about a Brexit deal, shutdowns forced by the coronavirus pandemic, the upcoming 2030 ban on the sale of new petrol and diesel cars, microchip supply chain shortages – and now the prospect of a two-year recession, forecast earlier this month by the Bank of England are all “extremely challenging”.
Britain is not alone in its fight to keep a buoyant motor industry in the face of growth from Japan and China.
France, Italy and the US have all suffered drops in their car output as competition from abroad and industrial and production problems at home eroded the dominance of once-ubiquitous brands.
In America, car making has given way to truck and van manufacture. The once-dominant motoring innovator, where drivers drive the greatest distances out of any developed nation, is now fifth in the world, behind India, having made 1.9m cars last year.
France made 918,000 cars, down 42pc since 2015 – narrowly beating the UK – and Italy, the home of Fiat, Ferrari, Alfa Romeo and Lancia, made just 451,700.
Even Germany has suffered a 46pc drop, from 5.7m to 3.1m.
“Any sector would be challenged by any one of these issues but to face all of them tests the industry to the core,” says Hawes.
At the same time, there is a limited window for Britain – as with other countries – to become a serious player in the future electric car market.
The Faraday Institution, which has been tracking these efforts since 2017, says all-important battery gigafactories typically take at least five years to reach operational capacity.
Demand for batteries in the UK market – which will come predominantly from cars and other vehicles – is expected to reach 100 gigawatt hours (GWh) per year by 2030, the equivalent output of around five large factories.
Yet only two such plants are in the pipeline – one of which is the endangered Britishvolt scheme.
Meanwhile, the Faraday Institution says the investment decisions on others planned for 2030 “are all likely to be made in the next two to three years''. The outcomes are set to influence whether car manufacturers base their assembly lines in Britain or mainland Europe.
Potential UK factories include Britishvolt’s proposed 38 GWh plant in Northumberland and an 11GWh plant in Sunderland, next to Nissan’s factory, for which Envision AESC has secured planning permission. That would give Britain a total productive capacity of 49GWh.
By comparison, European gigafactory capacity is 78 GWh and projected to be 1,100GWh by 2030, with more than 40 plants expected to be open and producing.
The largest is Tesla’s gigafactory in Berlin, which was opened by the company’s billionaire boss Elon Musk in March and will eventually produce 100GWh.
Germany, Europe’s leading car maker, has 12 gigafactories opened or planned despite suffering a fall in petrol and diesel output. Hungary, France and Italy are not far behind.
Further afield, the US boasted 44GWh per annum of capacity in 2021 and China a colossal 558GWh, according to research by S&P Global.
As a whole, North America is projected to reach 700GWh by 2031 - and China more than 3,700GWh.
Last year the EU signed off on €2.9bn (£2.5bn) of state aid for gigafactory development. In China, offers such as free land, cheap electricity and recent subsidies for electric car buyers drew gigafactory developers including Tesla to the country. Green vehicles are a central pillar of the country’s Made in China 2025 policy, which also offers state-subsidised research and lower tax.
As one British industry executive puts it: “Our competitors are so big. We need a greater level of government help because we are up against the Chinese government.
“How are you going to compete with it? People are just waking up now to the fact that China's taking a 50-year view.”
'Whatever it takes'
Against this backdrop, the Faraday Institution said the UK has enjoyed some “notable successes” but that “more needs to be done, and quickly”.
“The UK is making progress but not moving fast enough compared to its competitors in Europe and beyond,” it said in a study published in the summer
Much hinges on what happens next. For example, German company BMW has been building electric versions of the Mini at its Oxford plant since 2020.
However, it is about to start building hatchback and small SUV variants of the electric Mini in China, while making electric versions of the Countryman model in Leipzig, Germany. This raises questions about the long-term future of the Oxford plant.
BMW has insisted Oxford will "remain at the heart of Mini production", but there is no clear answer over whether production of electric models will remain in the UK in future decades or move to Europe.
Susan Brown, leader of the city council, regularly meets with the company and praises it as a hugely important local employer.
“The car industry is really important both to Oxford – we are the home of Morris Motors and the Mini – and to the country,” Brown says.
“We want to make sure BMW gets the support it needs from the Government. That should take stock of tax benefits, business rates relief – whatever it takes to ensure they can be successful here.”
Another enterprise at risk is Toyota. The company warned the government this summer that it would end manufacturing in the UK if it brought forward a ban on hybrid models to 2030 as part of net zero plans, something reportedly considered by Boris Johnson when he was prime minister.
Toyota made 124,918 Corollas at its manufacturing site in Derby in 2021, and historically 90pc have been for export.
The departure of exporters like Toyota would be a blow not just to Britain’s electric vehicle hopes, but also to the country’s economic standing. One of the reasons the reaction to the Government’s mini-Budget was so dramatic was our record current account deficit, which makes the Treasury more dependent on international borrowing. Britain’s gap between imports and exports now stands at a yawning 8pc of GDP. A drop in manufacturing and export is part of that problem.
Andrew Graves at the University of Bath, a 50-year UK car industry veteran, says that a strong car making industry can help to fix that.
“There are three things that create wealth,” he says. “One's agriculture, one's mining, and the other is manufacturing.”
The services on which the UK economy is built are not reliable builders of wealth, often because industries such as tourism are seasonal and low-margin while banking and asset management merely take a percentage of wealth that’s already there, he suggests.
Graves started his career in 1966 as a trainee manager with Rootes Group, maker of the Hillman Imp. He worked for Lotus before moving into academia.
The car industry declined in the UK after this because it did not keep up with the modern production processes championed by Germany and Japan, he says. When Mrs Thatcher invited Nissan, Honda and Toyota to turn the industry around, it worked, but it also made the country an outpost rather than a centre.
“We had poor productivity, poor quality," he says.
"And that's been turned around largely by inviting in the world's best. The problem is when you do that, you lose control of the companies.”
This means when cuts are needed, the knife is wielded by boardrooms in Tokyo or Munich with less attachment to the UK.
The pool of domestic suppliers has also shrunk. While Britain has a good base for the aerospace industry, with companies such as Rolls-Royce, Meggitt and Cobham, the number of companies making components for cars is much lower.
Only two of the world’s top 100 automotive suppliers are British, according to Berylls Strategy Advisors. They are driveshaft maker GKN and TI Automotive, which makes brake and fuel lines. The pair are dwarfed by international players like Bosch, Continental and Canada’s Magna.
One new, growing supplier is Myenergi, which makes home chargers for electric cars and is backed by the former Tesco boss Sir Terry Leahy.
Myenergi boss Lee Sutton says the UK needs gigafactory capacity for battery production to reinvigorate the vehicle manufacturing industry and serve emerging sectors such as domestic energy storage.
“We recently launched our first home battery, and while we’re excited about the product, we would have preferred to source the battery cells from the UK if that had been an option,” he said.
He estimates that the UK can only produce 50,000 car batteries a year, not even a tenth of what will be needed.
Hawes at the SMMT argues that Britain’s automotive industry has “fundamental strengths” but that changes are needed to make sure it doesn’t fall prey to more agile rivals.
“It can, and will, build back,” he adds. “But the UK Government – like others with whom we compete – must take action to ensure the UK remains a competitive destination for inward investment.”
Extra checks on exports to the EU – the UK car industry’s biggest market – have inevitably added time and pressure.
The UK motor industry has a 0pc tariff deal with the EU, but there is still plenty of paperwork that was not there before the UK’s exit from the union, says Ian Foley, founder of electric bus maker Equipmake. These small differences can mean foreign investors are put off from the UK.
Cracking the gigafactory conundrum
Palmer, who is known as the “godfather of electric vehicles” because of his work launching Nissan’s electric Leaf, can vividly recall being awoken at 3am by former business secretary Lord Mandelson 12 years ago when he was still an executive based in Japan.
Nissan needed to decide where to situate a battery factory for the Leaf – then seen as an ambitious gamble – and Mandelson had caught wind that Palmer was set to choose Portugal over the UK.
“I hear you're going to make the decision to go to Portugal, I want you to change your mind,” the Labour minister told Palmer.
Palmer replied that the Portuguese had won fair and square, offering better incentives to the company, but Mandelson requested that he hold off 24 hours anyway.
“He then came back with the goods – and that is why the battery plant in Sunderland exists today,” Palmer says.
“And once you've got a factory, it's easier to expand it.”
Today, ministers need to be similarly proactive to ensure that Britain gets its share of the electric car market, he says.
“You look across the channel, and the EU has made battery manufacturing a project of strategic priority,” Palmer says.
“It’s a chicken and egg situation. For example, if I wanted to build a battery factory in the UK I probably want to secure Jaguar Land Rover as a customer.
“JLR probably also wants to be close to a battery manufacturer, otherwise it'll decide to go somewhere like Slovakia. That's where you need intervention.”
Palmer, who is chairman of battery producer InoBat, says his own company is currently choosing between Spain and the UK as possible sites for a gigafactory – but Madrid is working harder to woo him.
“From an emotional point of view, I'd love to see the UK win, but I have to represent my shareholders,” he says.
Foley agrees. “One thing that concerns me is if you look at the level of commitment from other countries, regions, to things like battery manufacturing, it's orders of magnitude larger than the UK,” he says.
If the Government will not shell out, some believe rules should be tweaked to allow pension funds to invest in the nascent sector. Even a tiny fraction of the £114.6bn squirrelled away by pension savers last year could make a difference, but current restrictions mean UK funds must be far more cautious than their US counterparts.
“Fundamentally, in the UK, the people who run investment funds are more conservative than in America,” Foley says.
If the UK can crack the gigafactory conundrum, it can harness the great strengths already here.
“The UK is known for having outstanding creativity and innovation,” says Hayaatun Sillemchief, chief executive of the Royal Academy of Engineering.
Industry figures say this is borne out by the wealth of motorsport companies based here, such as McLaren, Williams, Aston Martin, as well as the racing teams for Mercedes, Alpine and Haas.
But, Sillem adds, the country must get better at taking that innovation and successfully commercialising it into businesses that generate manufacturing, jobs and wealth. She too cites the shyness of investment money and the lack of government help as problems holding back the industry.
“We do need to have that clear partnership between government and business,” she says.
Palmer says Britain still has a chance at turning things around, but adds: “If I’m being honest we’re arriving very late to the party. We’d better get a move on if we think we're going to save the car industry.”
After his 150th phone call, Britishvolt’s Rolton managed to secure a last-minute lifeline for his company from Glencore, the mining and commodities giant.
The cash injection - which is being accompanied by cost-saving measures such as voluntary pay cuts pledged by staff - will keep the business going for now. In the end, Rolton says, either his business succeeds or another one must if the British car industry is to survive.
“Batteries come to cars or cars go to batteries,” Rolton says. “We still don't quite seem to grasp that yet.”
For now, Britisvolt’s dream of powering the electric car revolution is operating on borrowed time. Like the UK’s car industry at large, time is running out to save it.
A government spokesman said: “The UK is one of the best locations in the world for automotive manufacturing and we remain dedicated to securing gigafactories across the country.
“Our success is evidenced by the huge recent investment by Nissan in their new Sunderland site, and we will build on this through a major investment programme to electrify our supply chain and create jobs.
“Support for Britishvolt through the Automotive Transformation Fund was always dependent on the company meeting certain pre-agreed milestones in order to protect taxpayer money.”
As for Thatcher in the 1970s, the task of balancing taxpayer exposure with protecting a vital industry is a challenging one.
But unless the country can get it right, Britain risks the sun setting on its electric car ambitions.
