Has Tesla hastened the death of Britain’s electric car revolution?

Analysis: On current trends it seems unlikely that a significant proportion of the electric cars sold in Europe will be made in the UK when the market finally takes off, says Sean O'Grady

A Tesla Model 3 on display earlier this year (EPA)

The announcement by boss Elon Musk that Tesla will build its gigabyte electric-battery plant (and prospective car factory) in Germany rather than Britain is the strongest evidence yet that what was once a most promising future for the British car industry is is now, realistically over – and mostly thanks to Brexit.

For Musk himself, in his usual direct way has made plain that the UK’s planned departure from the EU is the deciding factor. With it will go many jobs that would otherwise be created, high-paid work generating tax revenues and export earnings – all the way through the supply chain. Tesla would, for example, have been a handy new customer for British Steel.

It is an example of the mainly invisible losses Brexit will entail. Rather than being able to point to piles of rubble where once factories and office blocks stood, now bulldozed because of Brexit – and there will be some of those – the real costs is in the new sites that were never built or developed. In other words the contributors to economic growth that would have been there if the UK has remained inside the single market and customs union of the largest economic bloc on the planet.

Of course there are other electric are operations in the UK, but these too are under pressure, and mainly as collateral damage from Brexit.

Jaguar Land Rover, for example, is to receive £1bn in public funds to support development of new facilities at the Jaguar plant at Castle Bromwich and a new battery production facility in Hams Hall, Birmingham. BMW, in turn, will be launching the electric Mini next spring, manufactured in Oxford, though the scale of the electric componentry that will now be built in the UK, as opposed to Germany, is being scaled back – because Germany, post-Brexit – is a superior base in the EU to make the cells than Britain will be.

The other centre for electric car manufacture is the giant Nissan plant in Sunderland, where the Nissan Leaf is built – about 30,000 units a year. It is built in other plants around the world, and is the world’s bestselling electric car – 400,000 units in all.

There are smaller enterprises too. JCB has started to make some smaller diggers run on electric-only power, while the Chinese Geely Group, which makes an electric London taxi and some vans, is also invested in electric production in the Midlands and a R&D centre for Volvo/Polestar in Coventry. The prime minister visited the manufacturer yesterday. Alexander Dennis is developing all-electric buses.

The reason why the prospects for those enterprises starting to look as gloomy as the news from Tesla is, in different ways, all related to Brexit. Basically, it doesn’t matter how smart Britain’s engineers, or how efficient the factories, or how hard-working the staff, or how generous the government’s financial grants, if there is no easy way to export the products to the EU.

First, there is the still-live prospect of a no deal Brexit at the end of the transition period (31 December 2020). Thus from the end of next year – not far away – manufacturers in the UK will face new red tape, supply delays and, even more damagingly, tariffs being placed on components and finished products as they move on increasingly disrupted supply chains back and across the English Channel. Only Jaguar Land Rover, which sells relatively more of its vehicles outside the EU will be even partly protected, and even then by not very much.

This is the second factor; economies of scale. In the case of Mini, Nissan and Jaguar Land Rover, electric cars are still a sideline to the main business of making diesel and petrol engine cars, or hybrids of those. If the main business of the factory is disputed and disappears, then the volumes of electric car and battery production are too small to cover the overheads (for the firm itself and for its sub-contractors). And production of new models can be swiftly and easily moved elsewhere – there is plenty of spare capacity the auto industry. We have already seen how Honda has rationalised operations to Japan, closing their Swindon works, and Nissan and Mini have downgraded future investment. Peugeot have made it clear that production at Ellesmere Port, which might one day involve electrified versions of Vauxhall cars, is mortally threatened by hard Brexit.

Taken together, the electric car industry in the UK – from battery production to research and development to full assembly – will soon lack any critical mass to survive, the volume base, already small, will simply not exist to support the pool of skilled works and specialised component suppliers that would be required to make this exciting new industry with this huge potential at all viable. With Nissan, Jaguar Land Rover, Geely, BMW and Tesla located in the UK, you could envisage a vibrant new future for automotive as it moves out of the old technologies and into the new. Instead it is Germany, within the EU, that is developing the skills and building on its present expertise in car-making. As Musk confirmed: : “Everyone knows that German engineering is outstanding, for sure, and that’s part of the reason why we are locating our gigafactory Europe in Germany.”

Instead, the British electric car industry will die before it has taken more than a few of its first baby steps. By contrast, the industries of China, Germany and South Korea in particular, with Tesla in the US, are producing ever bigger numbers of excellent new vehicles, bringing the cost of the electric car closer to its fossil-fuelled siblings, and increasing the range available on single charge.

Does it matter? Well, if you’re Boris Johnson it might. As recently as the Conservative Party conference he proclaimed: “In the West Midlands we are seeing a 21st century industrial revolution in battery technology. One in five of the electric cars sold in Europe is now made in the UK, and that is before we have begun Andy Street’s vision of a West Midlands Metro”.

The old car industry has been based on the internal combustion engine ever since Karl Benz built his pioneering three-wheeler in 1886, and early steam and electric alternatives fell out of favour by the time the T-Model Ford arrived in 1908.

The UK car industry might indeed be hit by Brexit, but Mr Johnson’s working assumption was that the bright new battery-powered future car industry would be completely at home in “global Britain”. Alas that was based on an incomplete understanding of the industrial ecosystem required for modern mass manufacturing.

For Labour, Rebecca Long-Bailey has suggested a range of public subsidies and even an ambitious plan to (possibly) convert the soon-to-be-abandoned Honda works in Swindon to electric-battery production. Of course British governments have not always enjoyed the success of the private sector when they have tried to get into the motor business. The money is usually available, but not so much the expertise or the competitive disciplines of the free market. On the demand side, Labour say they will invest £3.6bn into a “mammoth roll out” of electric vehicle-charging networks.

On current trends it seems unlikely that one in five electric cars sold in Europe will be made in the UK when the market finally takes off. At the moment, yes, it is tiny; in the UK only around 28,000 pure electric cars out of two million new car sales so far this year. Yet the potential globally is vast, with ever more demanding carbon neutral target dates and more cities banning petrol and diesel vehicles (most recently Bristol).

Last year saw a (relative) boom in electric vehicle production with worldwide sales of 2.1 million (out of around 80 million in total) and Deloitte is forecasting 21 million electric cars on the road globally over the next decade – about a quarter of all cars sold. Not many will have “Made in Britain” stamped on them, and Mr Johnson won’t be able to hang out with Elon Musk at the British Tesla factory.