New figures show that the share of UK battery electric vehicles (BEV) sales as a share of new car sales fell last year for the first time since 2018. This adds to concerns that the UK is stalling when it comes to the global EV race. While total BEV sales saw an annual increase of 17.8% in 2023, their market share dipped slightly from 16.6% to 16.5%, according to new data from the Society of Motors Manufacturers and Traders (SMMT). This remains far off the UK’s target of 22% by 2024.
In response to these figures, SMMT chief executive Mike Hawes has called for a tax cut for EVs, arguing for the government to offer consumer incentives that “will make the UK the leading European market for ZEVs [zero-emissions vehicles]”.
Since the closure of the UK’s temporary “plug-in” grant in summer 2022, which offered discounts on new, low-emissions vehicles, the UK has become the only major European market with no BEV incentives. However, the lack of incentives is just the tip of the iceberg, with the past few years witnessing a series of policy setbacks that, combined with a lack of investment, have eroded the success of the UK’s EV sector.
In a now-infamous September 2023 speech dismantling a number of the UK’s key net-zero policies, UK Prime Minister Rishi Sunak dealt a blow to EV manufacturers by announcing a five-year delay to the UK’s ICE cars phase-out, from 2030 to 2035.
Sunak justified his net-zero policy blitz (which also included a delay to the UK’s oil-fired boiler ban, and new, less ambitious home energy efficiency targets), by arguing that it would relieve consumers of the high upfront costs associated with net zero, like purchasing an EV. He also argued that it would provide car manufacturers with more time to transition to EVs.
A handful of car manufacturers were “grateful for the extra breathing space”, and the Guardian has since revealed that major carmakers including Toyota, Jaguar Land Rover and Nissan, lobbied the UK Government to weaken or delay the ICE ban. Others, including Volkswagen, Ford and Tesla, had argued for an even tougher ZEV mandate. Ford, Vauxhall Motors, Rolls-Royce and Bentley had all already announced plans to phase out petrol cars from 2030. Ford’s UK chair Lisa Brankin called the relaxation of the 2030 target an unhelpful policy signal that undermined the company’s plans.
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Sunak’s decision to push back the ICE ban is not expected to have a large impact on emissions, given the government’s ZEV mandate (which mandates 80% of all new cars sold in 2030 to be zero-emissions) remains in place. Nevertheless, it means the UK will have a mixture of hybrid and diesel and petrol cars until 2035 rather than 2030. Experts fear that the delay will damage investor confidence in the UK’s EV sector.
A blow to investor confidence in UK EVs
The real issue with Sunak’s speech lies in its “optics”, says Helena Bennett, senior policy advisor at UK think tank the Green Alliance. Sunak’s “flip-flopping” on the EV mandates, says Bennett, tells investors that the UK is not serious about its net-zero ambitions.
“We have heard from speaking directly to investors and stakeholders across the battery and EV supply chain that what they want more than anything is some certainty and direction from the government,” she adds. The 2030 ICE ban was set a few years ago, she notes, but investment decisions on the back of it are now in question.
Sunak’s announcement did not come as a total surprise to investors, who have spent months sounding the alarm about the government’s failure to assure them that the UK would stick to its 2030 target.
In a open letter to Sunak in late August, the UK Sustainable Investment and Finance Association (UKSIF), which has more than 300 members accounting for more than £19trn in assets, warned that “recent public debates… cast doubt” on the UK’s 2030 phase-out of new petrol and diesel cars and “risk eroding trust” among investors.
James Alexander, UKSIF’s CEO, tells Energy Monitor that Sunak’s rollback of a number of key policies, especially the 2030 ICE ban, has led investors to conclude that “investing on the basis of the UK’s climate targets represents a much higher risk now than it did three, six, or nine months ago”.
A race to the bottom
There was a time when it was expected that Britain’s shift to EVs could save its ailing automotive industry, often referred to by UK politicians as the “jewel in the crown” of British manufacturing. It is Britain’s top economic sector in terms of annual revenue, with a total gross value add of £46bn, according to non-profit the Aldersgate Group.
However, battered by trade uncertainty caused by Brexit, the Covid pandemic and a global semiconductor shortage, the UK’s automotive industry has been in decline since 2016. The total number of cars produced in Britain fell 10% year-on-year in 2023, dropping to the lowest number of cars produced since 1956.
EVs, however, have largely bucked that trend, with 2023 seeing record levels of production. Almost a third of all cars made in Britain last year were fully electric or hybrid, according to the SMMT.
Nevertheless, experts argue that the UK lacks a robust industrial EV strategy across the supply chain, which includes batteries. Last year, a group of experts warned MPs on the Business and Trade Committee that a lack of coordinated industrial policy and subsidies for gigafactories was a key risk factor for a “gradual decline” of the UK's automotive industry.
A significant blow to the UK’s EV supply chain manufacturing base came back in January 2023, when domestic lithium-ion battery manufacturer BritishVolt went into administration, scuppering plans to build a gigafactory that could have provided up to 3,000 jobs and around 30 gigawatt hours (GWh) of battery capacity annually.
As a result, the UK’s gigafactory capacity – including the Chinese-owned AESC factory in Sunderland, and two planned factories: a second, larger AESC factory in Sunderland and Indian-owned Tata group’s planned 40GWh factory in Somerset – is expected to reach just 79.9GW in 2030, falling around 20GW short of expected demand.
Consumer confidence teeters
On the demand side, the UK has historically surpassed many other European countries in terms of BEV sales as a share of new car sales, according to July 2023 data from the European Automobile Manufacturers’ Association.
At the same time, recent data suggests the UK could soon drop down the ranks. UK BEV sales growth now lags the EU average, according to a recent analysis from consultancy Cornwall Insight and law firm Shoosmiths.
In July 2023, UK BEV sales experienced a year-on-year growth rate of just 31%, compared with an average of 60.6% across the EU27, according to the analysis. Researchers blamed the lack of available charging infrastructure in Britain (which has a ratio of 11.3 BEVs to every publicly accessible charge point); cuts to BEV purchase incentives; continued delays to the rollout of rapid charging across the UK’s motorways; and high electricity prices, among others.
EV investors fleeing abroad
Experts have warned that the UK Government’s failure to support a domestic EV supply chain risks the country taking a significant hit to automotive exports. Currently, 80% of all cars manufactured in the UK are exported, shows research published in June 2023 by British non-profit the Energy and Climate Intelligence Unit (ECIU).
Of these exports, 57% go to the EU, 8% to China and 5% to the US – all countries with EV targets that “heavily restrict” the sale of petrol and diesel vehicles. The value of UK car exports risks falling by a cumulative £13.2bn ($16.8bn) by 2030 “if the UK fails to respond and develop” its EV manufacturing base further, the ECIU warns.
The uncertain investment environment means there is a risk investors will flee overseas, particularly to the US, where Joe Biden’s Inflation Reduction Act (IRA) provides significant federal tax credits to incentivise clean energy projects.
UKSIF’s Alexander tells Energy Monitor that thanks to these incentives, the US has become an “extremely attractive” destination for EV investment. Where the UK Government reportedly gave Tata Group, the parent company of Jaguar Land Rover, £500m in support to build a new gigafactory in Britain, this was a one-off deal, he notes.
Indeed, according to a September 2023 report from the Aldersgate Group, the UK’s automotive sector is among the top ten sectors exposed to trade risks caused by the UK’s failure to enact policies that effectively compete with the IRA. US EV sales were up 54% year-on-year in the first quarter of 2023, while US battery manufacturing growth "has been significant, outperforming Europe and China", notes this report. Some 25 new battery manufacturing projects have been announced in the US since the IRA came into law in 2021, representing $32bn of capital investment and 20,000 new jobs.
The Aldersgate Group cites a handful of automotive companies that have already shifted their businesses to the US from the UK, lured by attractive IRA subsidies. These include electric van company Arrival, which relocated from Bicester to North Carolina, cutting 800 jobs, as well as Ford, which has announced plans to cut 1,300 jobs in the UK over the next two years, and a further 2,400 in Europe, in order to focus its operations on the US. Ford has cited financial incentives and supply chain security in the US as its reasons.
A comprehensive UK EV strategy needed
Given that the UK is the “historic birthplace” of the automotive industry, it has many of the necessary attributes to develop a thriving manufacturing base, Green Alliance’s Bennett says. This includes “big existing physical sites for car manufacturing, many of which are close to the coast, so can benefit from direct access to cheap offshore renewable energy”.
Bennett notes that while the UK lacks the financial firepower of the US – one analysis from the Green Alliance found that the cost of implementing the equivalent of IRA’s EV policies in the UK would be an eye-watering £64bn between now and 2030 – the injection of "some" public sector funds could scale up much-needed investment.
In a March 2023 report entitled 'Saving the UK’s car industry', the Green Alliance argues that "the government should prioritize developing a comprehensive strategy for battery and EV manufacturing in the UK [which] span[s] the entire value chain and clarif[ies] how access to critical raw materials will be secured; how private capital will be mobilised; and how the UK will prepare for future opportunities, such as battery recycling and next generation battery technologies".
Investment could be kick-started with "government driven offtake agreements", which would involve the government creating a register of businesses that plan to operate in the EV supply chain. Green Alliance also proposes the creation of a Battery Investment Facility, which would use public money, potentially via loan guarantees, to attract private investors. In addition, the government could offer tax breaks to OEMs if they have an offtake agreement with a battery gigafactory in the UK, it suggests.
Bennett emphasises that the UK Government’s focus needs to go beyond gigafactories; for example, to increase the domestic extraction of critical minerals needed for batteries. The UK published its first critical mineral strategy in August 2022, which aims to accelerate domestic production of minerals like lithium, but experts have argued that the strategy is not backed up by sufficient investment.
A political opportunity
The UK’s main opposition Labour Party has been quick to capitalise on Sunak’s net-zero policy rollback, publishing its own Plan for the Automotive Sector, which includes a harsh critique of the Tory party’s "curious mix of top down policies with no direction or support for industry to make the transition [to electric]".
The detailed document contains a number of promises to unlock private investment in EVs; for example, a pledge to part-finance additional gigafactories through a National Wealth Fund – which it says could create 80,000 new jobs.
However, Starmer himself is prone to backtracking on his pledges – just last week, he appeared to water down Labour's £28bn target for green investment into a mere "ambition". However, with a UK general election on the horizon, the next few months could prove pivotal to the future of Britain’s EV industry.