UK auto industry finds Brexit much less of a problem than expected
FFIVE YEARS there is, just after the British vote to leave the European Union (EU), Nissan, a Japanese automaker, has warned that the future of its Sunderland plant is uncertain. On July 1, he announced a £ 1 billion ($ 1.3 billion) investment in a new battery plant that will secure the plant’s future. And on July 6, Stellantis, another automaker, said it would invest £ 100million to produce electric vans at Ellesmere Port. More news is expected soon from Bmw and Toyota. Britain’s trade deal with the EU in December 2020 – and mind-boggling amounts of government money – have bosses thinking less of raising the sticks and more of the benefits of post-Brexit regulatory freedom.
Before the vote, things were going wonderfully for the UK car industry. Production reached a two-decade high in 2016, at over 1.8 million units. Measured in the number of vehicles per employee, Britain had become one of Europe’s most productive automakers by 2016, with around 160,000 employees producing almost 11 vehicles each per year, compared to a EU average of less than eight. By making it more difficult to transport parts across borders, Brexit has put this at risk.
A modern car is the result of a complex international production process. It typically has around 3,000 components. For cars assembled in Great Britain, only around 40% of these components are produced in the country. The crankshaft in a Bmw Mini crossed the Channel three times before being installed in Oxford. About four out of five cars made in Great Britain are exported, more than half of which go to the EU. Nissan opened its Sunderland plant in 1986, drawn in part by the prospect of liberalizing the labor market, but also by easy access to Europe. Others followed, and since the failure of MG Rover in 2005, all volume manufacturers in Britain were owned by foreigners.
Although the Trade and Cooperation Agreement (TCA) between Great Britain and EU did not give the industry everything it hoped for, it failed. Trade can continue most of the time without tariffs or quotas. Customs controls and fees introduce friction, but are minor compared to the threat of 10% tariffs under World Trade Organization rules if no deal had been reached.
The “rules of origin” requirements are more problematic. These aim to prevent companies from importing goods from a third country and re-exporting them as if they were produced in the country. For tariff purposes, the TCA deals with Great Britain and EU as a single bloc, but excludes countries with which the two have a trade agreement, such as Japan. By 2027, the percentage of components by value originating outside Great Britain or the EU must be reduced to 45% for most cars, if tariffs are to be avoided. Manufacturers who sell in the EU and have supply chains that extend into Asia therefore have a choice: leave Britain or double down. They make different calls. Nissan invests in Great Britain; Honda will close its Swindon plant next year.
All of this coincides with an industry-wide reinvention as automakers turn to electric vehicles. Batteries, like the engines in gasoline cars, are expensive. “If you don’t source batteries nationally, I don’t see how you can stay in compliance,” says a production manager. Britain currently lacks a so-called “gigafactory” – a word coined by Tesla’s Elon Musk – to mass produce them.
Nissan’s planned new plant, a joint venture with Envision AESC, a Chinese company, will be able to produce 9 gigawatt hours (GWh) each year by the mid-2020s, enough to power 100,000 cars. The capacity could reach 25 GWh by 2030. Britishvolt, an independent consortium of battery manufacturers, plans a capacity of 30 GWh by the end of the decade. But the two together would not reach the 60 GWh That the Society of Motor Manufacturers and Traders, a professional body, estimates that it will be necessary by 2030 if as many cars are to be manufactured then as today.
In the upheaval, the UK government is spying on an opportunity to influence the thinking of automakers on where to invest. The ‘super deduction’, a particularly generous and time-limited tax break announced in the March budget, will allow businesses to reduce their tax bill by up to 25 pence for every pound of capital investment this fiscal year and following. Presented as a recovery measure in the event of a pandemic, it is best seen as a “huge subsidy to cover the costs of supply chains adapting to Brexit”, explains an accountant. Money is also splashed. Nissan and its partners will receive around £ 100million in direct grants for the new gigafactory, in addition to £ 80million from Sunderland City Council to build an energy grid connecting it to wind farms and solar farms. Such measures would have been possible while Britain was in EU– but it may not have been necessary.
Rather nicer for those hoping Brexit would mean less paperwork, rather than more documents, climate change targets and new technology provide a pretext. Automakers believe the UK government will be more nimble and forward-looking when it comes to regulating electric and autonomous vehicles. European regulators, who must hold the ring between 27 countries, are still moving slowly. In addition, they will inevitably be in high demand by the major German manufacturers, for whom the reinvention of the industry is a serious threat. Industry bosses point out that while Britain has already pledged to ban the sale of new diesel and gasoline cars by 2030, the EU is still only debating their ban from 2035. The major car manufacturers are urging it to slow down further.
Overall, Brexit is expected to still be negative for the UK economy, reducing potential growth. But subsidies, tax breaks and fewer barriers to innovation mean that for automakers, life outside the bloc will be more comfortable than they once feared. ■
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This article appeared in the Great Britain section of the print edition under the headline “Metal Pedal”