What makes a car British? That’s the question set to haunt the UK’s electric vehicle (EV) market over the next few years.
Now that the UK has left the EU, rules of origin regulations will apply to UK carmakers selling to EU customers. If vehicles aren't “British enough”, they will be hit with a 10% tariff when exporting to the EU. From 2026, at least 55% of an EV's value will need to be made in the UK or the EU, including its battery, to qualify for tariff-free export to the EU.
The biggest hurdle to being “British enough” is likely to be EV batteries, as nearly all are currently made in China. Europe hosts only 3% of battery capacity. While the EU has plans to be self-sufficient in battery production by 2027, the UK might not scale up production fast enough to meet demand.
“The trade agreement has effectively fired a starting gun on a race in terms of battery assembly manufacturing,” says David Bailey, a business economics professor at Birmingham University. “Countries are now scrambling to build capacity. But the EU is much further down that road in the UK.”
Building batteries for electric vehicles requires scaling up production to be cost-effective, such as in a gigafactory, a term coined by Tesla CEO Elon Musk to describe a large producer of batteries for electric vehicles.
At time of publication, only one company, Britishvolt, had announced plans to build a Gigafactory in the UK, compared to 16 projected to open in Europe in the next decade. Bailey puts this difference down, in part, to a lack of government support. “The EU has got the European battery Alliance and that has put nearly €7bn (£6bn) into encouraging manufacturing in the battery supply chain,” says Bailey. “The UK has pledged £500m over four years, and that just isn't going to cut it.”
Alongside the billions pledged in investment, Bailey adds that EU countries have enticed investors with special economic zones, tax breaks, and free ports. The added uncertainty surrounding the UK post-Brexit could exacerbate investors’ reluctance. Tesla, for example, passed on building a Gigafactory in the UK in favour of Germany, citing Brexit concerns.
Not everyone is pessimistic about the government’s support of the battery industry. “The overall package is difficult to compare across countries because that £500m is only towards battery manufacturing,” says Stephen Gifford, head of economics at the Faraday Institution, a research group specialising in UK battery technology. “The UK has other funds towards EV charging and towards the automotive industry transition, so I think the totality of the UK government funding is fairly similar to European countries.”
According to Gifford, for UK EVs to scale up production, “The work that needs to be done by the UK government is to identify suitable sites [for gigafactories]. They are far and few between. They need to be in areas where there's a skilled labour force that understands the automotive industry.”
Britishvolt, an electric vehicle battery business, may have found such a site in the North East of the UK. According to communications director Ben Kilbey, post-Brexit rules of origin represented an opportunity rather than a deterrence to investment.
“In many ways, it’s the perfect storm, all of the components for having a homegrown EV battery business,” says Kilbey. “You’ve got the government pushing their ten point plan for a green industrial revolution, you’ve got the fact that the world is pushing for lower carbon, you've got investor interest in Environment, Social and Governance, and you’ve got these rules of origin.”
The company hopes to break ground at its proposed site in Northumberland in the summer before scaling up to reach full capacity by 2027. That may be enough to stem projected demand for the time being. Still, by 2040, the Faraday Institution predicts the UK will need seven gigafactories to meet demand.
And, though Kilbey is enthused by the progress Britishvolt has made, he, too, cautions that it's challenging to find a suitable site for a gigafactory. “The Northumberland site has access to a port, which could potentially be a free port. It has access to renewable energy,” he explains. “I imagine if future companies tried to scale up at the pace we've done, there may be a backlog trying to build the facilities.”
Location, location, location
But scale it up, they may have to, if the UK is to safeguard its automotive industry. Building “local” battery plants could ensure the future of the UK automotive industry, which represents 13% of UK exports.
“If batteries continue to be mostly made in Asia, we think there's a strong possibility that the actual manufacture and assembly of the car will move there,” explains Gifford. “Because batteries are heavy, they're pretty hazardous to transport. And there are increasingly more regulations about transporting batteries.”
The Faraday Group estimates that if the UK fails to build enough factories to meet demand, more than 100,000 jobs could be lost in the automotive sector by 2040. If the UK fails to push for more investment, we could see the UK car industry fade away.
Tightening import requirements over EVs may also hinder progress on the UK’s climate agenda. According to the Climate Change Committee, an independent advisory body on climate change, mass-switching to EVs will be essential for the UK to reach its net-zero carbon emissions target by 2050. Arbitrary cut-offs on battery sourcing could be unwise when UK EV demand is only just starting to take off.
Battery manufacturing capacity is only one of many hurdles ahead in persuading consumers to switch to EVs, according to Professor Graham Parkhurst, Director, Centre for Transport and Society at UWE. Parkhurst points to the weak second-hand market for electric cars, the lack of charging points, and the prohibitive costs of buying a new EV.
“Supply of EVs could become an issue in some years' time, but that will depend on the relative evolution of supply and demand,” says Parkhurst, who points out that EV uptake should only be one part of the UK’s climate strategy.
“Emissions models are clear that simply replacing all the current cars with EV cars will not get us there,” says Parkhurst. “The pandemic lockdown has shown that many of our journeys can be replaced with tele-solutions. That needs to be part of the overall strategy as well.”