The UK auto industry is hoping that the Tata gigafactory, worth £4bn, will electrify the sector.

The UK auto industry would be one of the industries that could breathe a huge sigh.

India’s Tata Group ended months of suspense on Wednesday with the news that it will build a £4bn gigafactory,which is big enough to not only supply its luxury carmaker Jaguar Land Rover but also other customers.

A British government, which has previously expressed dissatisfaction with industrial policies, managed to outbid Spain for one of Europe’s most valuable investments in the automotive industry.

Rishi Sunak, UK Prime Minister, announced the deal with Natarajan Chandrasekaran on Wednesday at JLR Gaydon’s factory in Warwickshire. Grant Shapps admitted that the financial assistance offered by the UK government was “large”.

Stephen Gifford is the chief economist of the Faraday Institution. The research group focuses on electrical storage technology. He added that the factory would supply 40% of UK automakers’ expected battery demand by 2030. The motor industry has a cockahoop. Mike Hawes is the chief executive of the Society of Motor Manufacturers and Traders (the British trade body for automakers). “Tata was looking at Spain and that they chose the UK is a boost for us,” he said. This battery production will help put the UK on the map. It has had a tough few years.

One UK automotive executive, who did not wish to be identified, said: “This is definitely good news.”

The industry hopes that the government’s support of Tata’s megafactory — estimated at about £500mn – will encourage other investors to invest in the production of electric vehicles in the UK, after a period created by uncertainty caused by political turmoil and post Brexit complexities.

Hawes said, “The automotive industry narrative has been negative over the last few years.” Investment in the UK has been very difficult due to political, economic and regulatory uncertainties.

Even the oldest foreign investors in Britain are cutting back. Honda will close its Swindon plant in 2021, and Ford’s Bridgend engine factory in 2020. In 2010, UK production dropped to its lowest level since the 1950s. Just under 800,000 cars were produced, far below the 2 million vehicles produced in the 1970s.

The industry has criticised the UK government for not developing a consistent vision of the UK’s transition to electric cars, and for imposing near-impossible restrictions on petrol and diesel vehicles.

From next year, the UK will require that manufacturers meet their electric vehicle sales goals.

The industry could also become uncompetitive as a result of post-Brexit trade arrangements, which require that electric vehicles contain at least 45 percent EU or UK content by next year. If not, they will be subject to 10 percent tariffs. This is happening just as Chinese manufacturers are increasing their presence in the electric vehicle market. According to industry executives, the British ecosystem is not ready to meet these demands. Competitive batteries are the most critical part of that ecosystem. According to the Faraday Institution, Germany has 12 battery plants in the works, the biggest at 100GWH.

Tata’s announcement is a major step forward for the UK, which had previously only one 12GWH Nissan plant in Sunderland, with Envision Battery Company of China, and a 2GWH older plant at the same location.

Britishvolt, a battery startup that had been in business for only a few years, went into administration early this year and plans to build a gigafactory in Blyth (Northumberland) were abandoned. A group from Australia bought parts of the company with the intention of revitalizing the plans.

Tata’s investment could however be the catalyst that sparks change. Hawes said that the investment will not only support JLR in its transition to electric cars, but it will also secure the UK’s supply chain. Tata announced that Agratas will design and manufacture the batteries.

Hawes added, “It’s hugely important for the entire industry.” “It’s huge for JLR, and other companies will benefit if the supply chain gets going.”

Kevin Shang, an analyst at Wood Mackenzie research, said that the Tata announcement would “stimulate”, the UK’s manufacturing of cathode- and anode-components for batteries. In the short-term, however, “UK battery factories will have to depend on imports from East Asia, particularly Chinese and Korean companies to meet their demands”, he said.

It may be questioned whether the UK is relying on JLR to revive its auto industry. JLR is the UK’s biggest car manufacturer, and produces roughly 25% of the vehicles in the country.

The gigafactory was designed in the first place to meet the needs of JLR. JLR has committed to investing PS15bn to deliver six new all-electric models as part its own recovery plan.  After launching one of the earliest electric vehicles, the I-Pace in 2018, JLR failed to expand the range. High costs and a misguided strategy of chasing volume had left JLR nursing heavy losses, said Charles Tennant, analyst and a former Tata executive.

JLR has now decided to reduce costs, increase volume and raise pricing. The company lost £64mn (before tax and exceptionals) in the 12 months ending March 2023 compared to a loss £412mn the previous year.

Tennant said that JLR will report a profit in three quarters consecutively during the current financial period. The breakeven point for JLR has been halved, to 300,000. Meanwhile, the average price of its vehicles has increased from just under £40,000 to over £70,000.

Dom Tribe, an analyst with Vendigital, said that JLR’s challenge will be to continue this trend as it transitions to electric vehicles. It will be telling when new Jaguars with six-figure prices are introduced to the market. “Are customers willing to pay £100,000 for an electric Jaguar?”

Even if the UK gambles on JLR and Tata, it needs the gigafactory to ensure a strong future for the UK’s motor industry. Tennant said that this is a real renaissance in UK industry. It’s bringing the industry to the age of electric vehicles.”