Overview
The UK automotive sector’s long and innovative history is a vital part of the UK economy and the government’s commitment to net zero. Automotive-related manufacturing accounts for £67 billion [or approximately] (≈$85 billion) in turnover and £14 billion (≈$18 billion) to the UK economy, with more than 182,000 people employed in the sector. The UK is also the hub of Formula One racing with six out of the ten teams based in the UK. The industry accounts for over eight percent of total UK exports, with 80 percent of cars produced in the UK exported overseas. However, the industry is facing new challenges in meeting climate targets, and industry leaders are urging the UK government to devise a comprehensive strategy to address critical factors and help meet its goals.
The United Kingdom has an ambitious plan to achieve its net-zero goals and was the first G7 country to set in law a carbon neutral target by 2050. The UK mandated that it will end the sale of new gas and diesel cars and vans by 2035. Meeting these targets is a profound transition for the sector, especially in a post-Brexit, post-pandemic economy. Without increased government support, industry leaders are concerned about manufacturing shifting overseas and the decline of the UK automotive sector.
At the end of 2022, car production in the UK fell to its lowest level since 1956. The decrease was due largely to the shortage of semiconductors, but also supply chain issues and global disruptions. The CEO of the leading automotive trade association, the Society for Motor Manufacturers and Traders (SMMT), added that soaring energy costs, a tight labor market and a turnover of prime ministers added to the UK’s economic instability. Electric vehicles (EVs) and hybrid vehicles, however, provided a hopeful prospect as sales were up and represented almost a third of all UK car production. Electric Vehicles continue to be the focus of the government’s net-zero goals since zero emission is measured at the tailpipe, excluding hybrid vehicles and technologies such as eFuels and hydrogen combustion engines. Although the market steadily rebounded in 2023 and has experienced consecutive growth since then, concerns remain about the lack of resources to support the growing EV landscape. The high cost of EVs, lagging charging infrastructure, the cost of EVs, high energy costs and capacity and the growing demand for critical minerals, the need for domestic supply chains and (the lack of) skills needed to service EVs.
Since 2021, the UK government committed £30 billion (≈$38 billion) to support multi-sector decarbonization efforts including leveraging private sector investments, creating skilled jobs, and offering grants as fiscal incentives to purchase EVs. Critics warn, however, this is not enough to compete with financial subsidies in neighboring EU countries and the United States’ Inflation Reduction Act (IRA). The UK has said it cannot match these subsidies but plans to build on its industrial foundation and increase its competitive advantage to attract investment. However, to remain competitive, the UK will need to have a domestic supply chain.
Original Equipment Manufacturers (OEMs) are facing challenges in meeting the Rules of Origin requirements as a result of the EU-UK Trade and Cooperation Agreement (TCA), the second phase of which goes into effect in 2024. In 2024, more stringent rules apply stating that 45 percent of an EVs value and 50-60 percent (50 percent for the battery cell and 60 percent for the battery pack) of EV batteries must originate in the EU or UK or face a 10 percent tariff. Furthermore, from January 2024, the regulations state that UK-based batteries are not enough to qualify for tariff-free trade since 50 percent of the battery materials (Cathode Active Material) must also be sourced and processed in the UK. As the EU is the number one market for UK car exports, the UK would be at a competitive disadvantage. Both SMMT, and its EU equivalent, called for extensions to protect carmakers’ interests since no UK-based OEMs can yet meet the criteria.
Autonomous Technologies
Connected and Automated Mobility (CAM) and Connected and Automated Vehicles (CAV) are part of the industry’s new era of mobility and the UK’s overall plan to reduce road congestion, decarbonize the transport sector, and generate thousands of well-paid, skilled jobs. The UK government established the Centre for Connected and Autonomous Vehicles (CCAV) in 2015 to bring together CAM technology developers along with a wide range of experts to test and develop policy, and to build UK capabilities and supply chains. In 2020, the UK was noted as a top 10 market in KPMG’s Autonomous Vehicles Readiness Index 2020, leading on policy, legislation, and cyber security. To maximize these benefits, the UK government committed to working with industry and local government for a safe roll out of these technologies. As autonomous vehicles broaden the mobility landscape, the UK government will need a legislative and safety framework to address liability concerns and infrastructure requirements.
Leading Sub-Sectors
- Gigafactories – battery production
- Charging infrastructure/charging stations
- Electricity network/supply
Opportunities
The best prospects for U.S. automotive firms and suppliers continue to be the UK automotive aftermarket, which in 2017 was ranked fourth in Europe and ninth in the world, according to SMMT. As with the larger automotive sector, the traditional aftermarket will need to undergo a major transition and adapt to the shift to EVs. As part of this transition, opportunities exist for U.S. businesses as the UK scales up domestic supply chains; increases charge points across the UK; and upgrades the UK’s electricity grid to incorporate expanding networks of renewable, sustainable energy.
Resources
UK Government’s Office for Zero Emission Vehicles
UK Government Legislation: Automated and Electric Vehicles Act 2018
UK Government report on building a comprehensive and competitive electric vehicle charging sector
Society of Motor Manufacturers and Traders
Society of Motor Manufacturers and Traders: Blueprint for the Electric Vehicle Revolution
Centre for Connected and Autonomous Vehicles
UK Government’s Plans for Connected and Automated Mobility Technologies
For further information, please contact:
Jill Kruse, U.S. Commercial Service, Tel: 011 44 20 7891 3459