Can electric cars reinvent Britain's motor industry?

New models mean new investment, if the UK can win the business. Sarah Arnott reports

When the Prime Minister takes delivery of the ministerial fleet's first all-electric car this morning, he is not only shoring up his Government's green credentials but also a central plank of its industrial strategy.

The motor industry is only just starting to recover from its vicious recession, but the world's manufacturers are gearing up for the fight of their lives over the market for low-carbon vehicles. And the Government wants the UK in pole position for the kind of industrial renaissance that Lord Mandelson, the Business Secretary, had in mind when he said the country needed "less financial engineering and a lot more real engineering".

So far, the market is tiny. All-electric propulsion is restricted to inner-city runarounds such as the G-Wiz, and a few hybrid models which between them account for only a fraction of global sales. But competition is fierce and the major marques are vying to produce the first mass-market model.

One contender is the Mini-E being formally handed over to Gordon Brown, Lord Mandelson, and Lord Adonis, the Transport Secretary, in Downing Street this morning. It is one of 40 all-electric Minis being trialled over the next six months as part of a £25m Government-backed scheme to test a whole range of different electric vehicles and find out how people use them. In total, the Government is putting up £400m to boost the take-up and development of electric cars of all sorts. Part of the motivation is climate change, but there is also an industrial logic. As demand for green cars ramps up across Europe, manufacturers will start making decisions about local production – and the Government wants the UK to be at the front of the queue. "We are committed to making the UK a world leader in low-carbon transport," Lord Mandelson said. "We're investing in the skills, research and infrastructure that will attract private investors and help the UK lead the market."

There are some encouraging signs. Next year Toyota will start building the hybrid Auris at its factory in Derbyshire. Nissan is spending £200m so that its Sunderland plant can produce 60,000 lithium-ion batteries per year, and is thinking about whether the all-electric Leaf – which goes on sale in Japan next year – might ultimately be produced there. Both plans will be lubricated with public money. Government fingers are also crossed that the Vauxhall Ampera will be made at Ellesmere Port. The all-electric Ampera goes on sale – as the Chevrolet Volt – in the US next year, and will hit UK showrooms in early 2012. GM, Vauxhall's parent company, is billing the car as a normal family saloon, and has high hopes for its success as the first real mass-market electric vehicle. "The intent was to offer a car which can be first car of the household," Gherardo Corsini, a director of GM Europe, said. "We are trying to make electric normal."

The question currently taxing GM is when European sales will reach a high enough level to justify expanding production outside the US. The decision will be made in the first half of 2010, and the UK Government has made it clear throughout that it will put up money to draw the business to Merseyside. But Gliwice in Poland also makes the Astra on which the Ampera is based, as will Bochum in Germany by the time the new production comes on stream, putting GM in a strong bargaining position. "The fundamental question is, do we want to have a second facility building electric cars?" Mr Corsini said. "Then we have to see which site fits the best, which depends on technical issues, government support and so on."

But even if all the decisions go the UK's way, there is a danger that Britain has left it too late to take a starring role in the new world of electric cars. "It is a wonderful aspiration but the cards are stacked against the UK simply because the home-grown sector has declined too far to be able to support it," Garel Rhys, at Cardiff Business School, said.

Defenders of the UK industry often point to the 3 million engines manufactured here each year. But Professor Rhys's analysis shows that only between 16 and 26 per cent of their content, by value, is sourced in Britain – the rest is imported. Without either any large UK-owned manufacturers, or the well-established supply chain and surrounding research capabilities, the production of electric cars will be a similar matter of assembly. Both the majority of the components, and the high-value development work, will be done elsewhere.

The other big stumbling block is the cost. Battery technology is expensive, and all the car makers agree that the market will need incentives to get going. The Department for Transport is committed to a subsidy of between £2,000 and £5,000 for buyers once a mass market develops, and manufacturers are working on plans for leasing either the battery or the whole car as a way of defraying the high costs.

Marketing is likely to focus heavily on the cheap running costs compared with a petrol engine – it will cost about 80p to charge the Ampera, for example. But with an upfront price tag that may be double the petrol equivalent, and new engine technology cutting carbon emissions, the price may prove hard to swallow even with a bung from the Government.

"Within three years there will be a new generation of more efficient petrol engines," the industry expert Hilton Holloway said. "Unless governments do something radical – like designating cities pollution-free zones and forcing people to have electric cars – then there just isn't enough of a push."

Without the customers wanting to buy them, both electric cars – and the UK's dreams of building them – may run into the sand.

Vauxhall Ampera: What's it like to drive?

The gushing enthusiasts said Vauxhall's all-electric Ampera drives like a sports car. More cynical colleagues described it as a glorified milk float toshed up to look like the Batmobile. Neither group was entirely wrong.

The electric engine certainly lives up to its billing as being packed with torque. The Ampera really does take off from under you, and handles just like a mainstream family saloon all the way up beyond 90 mph. But the acceleration doesn't quite live up to its initial promise. Down goes your foot, off bolts the car. But within seconds the zoom is petering out, the acceleration less of a bound than a slide.

As a piece of engineering, the Ampera is absolutely fantastic. Aesthetically, it is a lot of fun. Even as a driving experience it is a perfectly acceptable way of getting from A to B. For such new technology these are all genuine achievements.

But ultimately, with no revs under your foot and no horses under the bonnet, it just doesn't have a soul.