The wheels have come off Britain’s car industry – here’s how to get it back on the road

If British factories cannot find a way to compete with China, then they don’t have a stake in the future, warns Sean O’Grady

There are two conflicting and shifting mandates that now apply to the people who make – and the people who sell – cars in the UK (Alamy/PA)

Ask anyone involved in the British motor industry or the car trade what their biggest challenges have been over the past few years and for most, three words will immediately come to mind: Brexit. Uncertainty. China.

At a time when Brexit is scarcely mentioned – even in the last general election or the current Tory leadership contest – it is very welcome indeed that the general secretary of the TUC, Paul Nowak, has urged Keir Starmer to get on with his Brexit “reset”. If successful, it could help boost what’s left of our domestic automotive sector in an industry that is the very epitome of globalisation.

As Nowak points out, the “reset” could “ease pressures on supply chains, which is really important in sectors like automotive and aerospace … Because nobody builds an aircraft wing purely on components sourced from the UK.” He adds: “You don’t build electric vehicles purely on components sourced in the UK. You’ve got to find ways to reduce the friction as much as possible.”

Exactly right – and we must bear in mind that the hit to national income caused by the UK leaving the EU is the ever-present context to many of our most bitter debates and formidable challenges. Taxation, the NHS, defence spending, the winter fuel allowance… all would be eased if there was more money around. Brexit, in other words, has been bad for investment, trade and business, and thus for the wealth needed to fund public services, private consumption and rising living standards. Growth, as all parties agree, is essential.

Uncertainty over Brexit blighted investment across the economy – especially in vehicle and component manufacturing – but it has recently been replaced by a different kind of uncertainty around the transition to zero emission vehicles (battery electric cars, BEVs) to meet net zero targets.

Electric cars, in other words. There are two conflicting and shifting mandates that now apply to the people who make – and the people who sell – cars in the UK. It is making life impossible for the sector (and, increasingly, for consumers).

First, take the original plan to end the sale of all new ICE (internal combustion engine) vehicles by 2030 and hybrids by 2035. It wasn’t always clear which petrol/electric hybrids fitted into which deadline but it was clear enough. Then came Rishi Sunak’s decision, seemingly promoted by the loss of a by-election, to push that back to 2035. Labour responded with a promise to reinstate the 2030 deadline but it’s not certain it will do so – ominously, there was no mention of it in the King’s Speech.

Neither has either party shown how it will build a battery manufacturing capacity sufficient to support domestic manufacturing. The plan for a better charging network and BEV taxation regime are also both highly opaque. These conflicting signals (or lack of them) have reinforced consumers’ natural reluctance to commit to a BEV – and left the uptake of greener vehicles to the business users and company car fleets, who profit from the generous tax breaks on them. Private buyers do not and are sticking to what they know.

That, if you will, is the “demand” mandate. It is not matched by the supply mandate, which still dictates that 22 per cent of their car sales have to be electric – whether people want them or not – and, even less forgivably, whether the government is actually encouraging them to buy them.

If a car company fails to meet the 22 per cent mandate, then it is “fined” about £15,000 per petrol, hybrid or diesel car and £18,000 per petrol, hybrid diesel van it sells instead – an absurd and draconian situation. The growing doubts about the switch to BEVs worldwide have most recently prompted Volvo (owned by Chinese giant Geely) to relax its ambitious goal of being a BEV-only brand by 2030, instead saying it will be 90 per cent “pluggable”, ie including petrol/electric plug-in hybrids. Such trends are also behind Volkswagen’s announcement about closing BEV manufacturing plants in high-cost Germany.

The result, closer to home in the UK, is some grotesque distortions in the UK car market, with normally pricey BEVs being flogged off at virtually half price. Firms such as Stellantis, which owns Peugeot, Vauxhall, Fiat and many other brands, are making noises about restricting the availability of petrol models. It is not sustainable and the government plainly doesn’t know what to do about it.

It’s also a problem because some UK manufacturing operations are very committed to BEVs in a global and local context – Stellantis and Nissan, for example – but others, notably Toyota, are sceptical. It is going to be impossible for ministers to please all the industry interests, let alone the green lobby and the trade unions.

Overarching all of this is China. Strategically, many years ago, Beijing judged that it could never fully compete with the Germans and Japanese in traditional ICE vehicle production. Instead, the government there encouraged its auto companies (with their foreign partners) to leap from the West and concentrate on developing battery technology, electric vehicles and global supply chains for raw materials (eg cobalt and lithium). This they did, while big Western giants such as Ford, VW and Toyota slumbered.

With low costs and state support, the result is that the Chinese BEV industry is the most competitive in the world and BYD (“Build Your Dreams”) vies with Tesla to be the biggest car maker on Earth. Europe and America, with few exceptions, have lost the first rounds of the electric car war, even with protectionist barriers erected by the Trump and Biden administrations and similar moves by the EU.

In the end, if British factories cannot find a way to compete with the Chinese – who do make some technically excellent products – then they don’t have a stake in the future.