Yahoo Finance Vauxhall owner probably isn’t blameless, but UK needs to switch on to the car crisis
Has Stellantis, the owner of Vauxhall, sounded the death knell for the (already shrunken) volume end of the UK car industry? Does the group’s warning that it could shut its UK operations unless post-Brexit trading rules are renegotiated represent an existential threat to the sector, as some voices immediately declared?
Well, it obviously isn’t possible to put a positive spin on Stellantis’s submission to the business select committee. It is less than two years since the company, which also produces Peugeot, Citroën and Fiat vehicles, announced a £100m investment in light electric vans in Ellesmere Port, complete with government backing.
So the threat is to perform an almighty U-turn, which, unfortunately, could be credible from a practical perspective. The group has alternative places to produce electric vans, notably a plant in Portugal that is being expanded.
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Yet there are three points of context to make here – and two suggest warnings of wider Armageddon may be slightly premature. First, while the “rules of origin” requirements, which dictate the content by value of a vehicle that must be sourced in the UK or EU, are a headache for all big carmakers during the electric transition, not everybody is issuing threats as loudly as Stellantis.
The Tata-owned Jaguar Land Rover said as recently as last week that its UK factories were safe even if it chose to source electric car batteries from Spain. Up in Sunderland, Nissan has a dedicated battery supplier – the Chinese group Envision – next door, so it should have no difficulty in meeting the 45% by 2024 demand.
Toyota’s electric plans for the UK are mysterious, but one has to ask if the deep problem for Stellantis, which knew about the 2024 deadline when it made its 2021 announcement on Ellesmere Port, is that it planned to source batteries initially from China. When the cost of raw materials for those batteries increased after Russia’s invasion of Ukraine, perhaps it was tipped on to the wrong side of the 45% threshold that implies 10% tariffs on exports to the EU.
If so, one has to wonder if the group built enough slack into its arithmetic. May 2023, after all, is late in the day to complain about a measure due to take effect in January 2024.
Second, there is a decent chance that Stellantis will be granted its wish that the UK and EU agree to extend the current 40% threshold until 2027. There is incentive for the EU to do so because some EU-based carmakers could be caught by 10% tariffs in the other direction – on their exports to the UK. That is because the EU is also behind the curve in building electric battery plants (just not as behind as the UK).
Note that Ford, highlighting its £1.6bn investment in a plant in Cologne, Germany, immediately backed the appeal for an extension. Battery supply chains across Europe, it argued, aren’t sufficiently developed to meet consumer demand for electric vehicles. “Tariffs will hit both UK- and EU-based manufacturers, so it is vital that the UK and EU come to the table to agree a solution,” it said.
It’s a strong argument. It would be perverse if a chunk of electric vehicles end up with tariffs as they cross the Channel, but petrol and diesel cars do not. Consumers in both the UK and EU would be baffled.
Again, though, just as Stellantis doesn’t represent all UK-based manufacturers, so Ford is not the voice of all firms producing in the EU. Some EU-based rivals may have organised their supply chains to meet the 2024 deadline (plus the planned increase to 55% EU-UK content in 2027) and be less enthusiastic about an 11th-hour change in the rules. But the lobby for delay is clearly growing, with even JLR talking about “unrealistic and counterproductive” deadlines. Some form of political fudge feels a reasonable bet.
And the third contextual point? That one is less reassuring for the UK: gigafactory development here is miles off the pace, and politicians wasted years being bewitched by the losing bet that was Britishvolt. Even if the 2024 deadline is ripped up, the UK still needs an industrial strategy worthy of the name – and the cost of energy for industrial production seems as serious as the underpowered battery supply chain.
Consider Stellantis’s troubles, even with their company-specific nuances, yet another wake-up call. The government needs a serious policy if it wants to run in the electric race.
