Biden’s green subsidies are speeding up the UK car industry’s decline

Washington, in the northeast of England, is proud to have US connections. George Washington’s ancestral house is located in the centre of the village. The family coat of arms welcomes visitors. Even the local golf course bears the name of the first US President.

The actions of the US capital, despite its historic affinities with the diminutive English name-sake, now threaten the vitality of the economy.

The UK’s biggest car plant is run by Nissan Motor Co., a Japanese company. It is not clear how long this plant will remain profitable due to President Joe Biden’s policies, which are disrupting the auto industry in Germany and South Korea. The Inflation Reduction Act is at the core of Biden’s industrial policy. It provides $369 billion in government funding to clean technologies, including electric vehicles and batteries.

The race to secure state-backed subsidies has intensified. is at risk of leaving the UK in a lurch. It will struggle to match the money offered elsewhere to encourage the transition while also exposing the ongoing frictions post-Brexit over access to the main European Union Market. Already, the signs are alarming.

By mid-March, European manufacturers of battery cells had announced their plans to increase production capacity by 581 gigawatt hours (GWh) on the continent. This is in response to the research into the energy transition. By 2026, the total will reach 1,100 GWh if you include non-European manufacturers of battery cells.

The UK equivalent is currently 12 GWh, at a single location: a “Gigafactory”, which Nissan is building in Washington. The government has promised subsidies for a additional battery plant on a new Jaguar Land Rover facility in southwest England. An announcement is expected soon. Conversations with former and current British auto executives reveal an alarming sense that the UK government is dragging its feet in the face of a roaring competition. The industry has been weakened by a series of mistakes and handicaps, including high energy prices and an overly-dependent supply chain on China.

They say that if the industry does not act quickly, it could be doomed. The history of British engineering is littered with defunct brands.

Ian Gibson, who was Nissan’s executive during the construction of the Washington plant and then ran the European business in the 1980s, said that “continuing decline” is written all over the horizon. He said that Biden’s policies create “a new focus” to accelerate the downward trend. “If the UK’s response to the US is isolated from the EU, we will be crushed between the two.”

The IRA’s challenge is also bringing renewed attention to the UK’s 2016 referendum decision to leave the EU. The UK finally left the 450-million-strong bloc in 2020. However, the EU is still the most important destination for the cars produced in the UK, and will account for 45% in 2022.

Stellantis NV has asked the UK government for a renegotiation of the Brexit deal in order to change the so-called rules of origin. Next year, 45% must come from the UK or EU to sell a car on the other side without an export tariff of 10%. The threshold will increase to 65% in 2027.

In a May submission to the UK Parliament, the maker of Vauxhall and Peugeot said that the rising cost of energy and raw material means it cannot meet the rules of the origin set forth in the Trade and Cooperation Agreement signed with the EU.

Stellantis warned of insufficient supply of battery production in the UK and continental Europe. If the cost of manufacturing electric vehicles “becomes non-competitive or unsustainable, the operations will be closed.”

Nissan, the UK’s largest automaker, is responsible for around 30% of the production. The assembling of cars in Britain could become too expensive once the new rules are implemented. The UK government has announced that it will announce soon a solution to the post-Brexit trade rules. Kemi BADENOTH, the Business and Trade Minister, said that it is also working on an “advanced manufacturing plan” aimed at keeping automakers in Britain.

In an interview given at the Qatar Economic Forum on May 23, Badenoch stated that “the strategy should be a way to help corralle a little more — not just in terms of support, but more streamlined policy — about what we are going to do to ensure this industry survives.”

The success of the PS1billion ($1.2billion) electric car hub, currently under construction between Washington & Sunderland, is a large part of this survival. The hub includes a battery plant for Nissan’s newest generation of cars, which is in addition to the smaller 1.7 GWh facility that Nissan already operates.

There’s a great deal at stake for a region that voted to leave the EU. According to Sunderland City Council leader Graeme Miller and Japan’s battery maker Envision AESC, each of them contributed about £450million. Sunderland City Council also committed £50million. The project is expected to begin operating in 2025 and employ 1,000 people.

The terminal is already similar to an airport that serves a mid-sized city. It has huge hangars in grey and the skeletons of terminal buildings. By 2030, the production is expected to reach 40 GWh. Miller, , a member of the opposition Labour Party, who represents a Washington area, stated that it is up to politicians to make sure it stays viable after it opens.

Miller told reporters in his office, located at Sunderland City Hall with a view of the car factory and wind turbines which power it. Miller said that the London government must prioritize EVs at a time when the US and China have made significant strides in the EV market. “We are putting the entire UK auto industry at risk.”

The complex, however large it may be, is dwarfed by similar projects in Europe. Northvolt AB, a Swedish company, has chosen to build a second battery plant in Germany, rather than the US. The facility will have yearly capacity of 60 GWh and be able to power approximately 1 million electric vehicles. Berlin’s government pledged EUR1 billion ($1.1billion) to attract Northvolt and the over 3,000 jobs that it promises. France is cultivating a “battery Valley” in the north of the nation with plants worth around EUR10 billion announced by companies such as Taiwanese manufacturer ProLogium Technology Co. Scandinavia and Italy have their own battery manufacturers. BNEF reports that $32 billion in funding has been allocated to nine European battery companies since the beginning of 2021.

The US numbers are even more impressive. The Environmental Defense Fund’s March report found that manufacturers in the US have invested more than $120 million in EVs and batteries in the past eight years. Nearly 75% of this amount was announced after Biden’s first industrial policy plank was implemented around 18 months ago.

China is home to the largest EV battery manufacturer in the world, Contemporary Amperex Technology Co. Ltd. It serves the world’s largest auto market where BYD Co. will likely replace Volkswagen as the leading brand of the country by the end this year.

Andy Palmer, former CEO of Aston Martin and current chair of Slovak battery manufacturer InoBat believes that the IRA is a response to the “amazing” progress made by electric vehicle and batteries manufacturers in China. Now, European governments have responded with similar actions. Palmer said that it is “very late”, but not too late, to act in the UK.

Britishvolt’s experience in January , when it went bankrupt after not being able to secure the funding or investors it sought, revealed the scale of the problem.

Palmer, who was also the chief operating officer of Nissan, said, “As a government, you have to decide whether or not your auto industry and the 800,000. people employed in it are critical for you.” If the answer is “yes”, then the UK Government must find similar incentives. He estimated the amount at between PS3 and PS4 billion.

Rishi Sunak, the Prime Minister, is trying to temper expectations. He said on May 23, , that “subsidy race that are essentially a zero-sum competition between allies, and just shifting capacity from one ally to another, is not appropriate.”

The government’s efforts to convince India’s Tata Group – the parent company of Jaguar Land Rover – to locate their battery plant in Somerset, rather than Spain, will be key. JLR is Britain’s second largest car manufacturer. Badenoch stated that the government would do everything possible to convince Tata to invest in the UK.

Michael Dean, senior automotive analyst at Bloomberg Intelligence, said that the UK will be fine if the JLR plant comes to fruition. The UK needs to see this.

Nissan accounts for only about 60% of the current production. The auto industry’s struggles are now affecting the political scene. The main opposition Labour Party is using them as a weapon to defeat Sunak’s Conservatives, as it tries to increase its polling advantage in the run-up to elections that will be held later next year. Rachel Reeves was in Washington, DC, a day after Sunak voiced his skepticism about state aid. She presented her plan for to emulate the IRA.

The Conservative government’s failure to develop a comprehensive industrial policy is putting our industries at risk, and could lead them to leave the country.

The decline of the British automobile industry is a result of successive governments. The UK remains associated with Formula One racing and luxury brands such as Bentley. The 1970s labor conflicts, poor models, and underinvestment led to the demise of mass-market brands like Austin, Morris, and Rover.

Nissan , a Japanese automaker, revolutionized the industry with its arrival. The company and Margaret Thatcher agreed to open the Washington plant in 1984. The company was offered a highly-skilled workforce and free access to the European single market. Britain had only joined it a few years earlier.

In 1999, the UK produced 1.79 million vehicles a year, a third less than Germany, but closer to their heyday. By 2020, when the UK officially leaves the EU, the production will be below 1 million cars. When Germany recovered from the pandemic last year, production fell to 775,000 vehicles.

Palmer says that it is a stark fact that in 1950, the UK was second in the world in terms of car production. Now, the UK is ranked 19th. He said, “I think it speaks for itself.” Gibson, a former Nissan executive who began his career at Ford Motor Co. UK in 1969, claimed that the country “blew it.”

It is now a question of whether the UK can make the switch from a technology that is 120 years old and once dominated. Darren Jones is the Chair of the House of Commons Business and Trade Committee. He said that the UK must strike a deal to align with the US’s subsidies agenda, while ensuring a battery supply network. Jones, Labour Party MP, said that other countries were doing things on steroids. “We are still at the beginning.”

This fact may be the greatest obstacle to the UK’s industry moving into the world of EVs and thus to its survival. Mike Hawes is the chief executive of UK’s Society of Motor Manufacturers and Traders. He believes that if the government does not act quickly, other places will get the investment. Hawes stated that “it’s still not too late, but the window is closing quickly.”

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