UK car industry calls for fresh investment after dire 2022 output

Last year was the worst for UK car production since 1956, with output throttled by ongoing global supply-chain issues and the recent closure of two of the country’s largest plants. A total of 775,014 cars left UK factories in 2022, down 9.8% on 2021 but – more starkly and significantly – a huge 40.8% down on pre-pandemic 2019, when more than 1.3 million cars were built. Figures released today by the Society of Motor Manufacturers and Traders (SMMT) have laid bare the impact of various geopolitical issues and supply constrictions on the British automotive industry - as well as highlighting, according to chief executive Mike Hawes, the critical need to attract new investment. The impact of Honda’s factory in Swindon closing in 2021 was evident. Even though the facility stopped production in July of that year, it still contributed nearly 55,000 cars to the annual tally. So too did the end of Vauxhall Astra production in Ellesmere Port in March have a dramatic effect, with output there dropping from 32,000 cars in 2021 to just 9510 in 2022. However, it wasn't just these two shutdowns that brought about the decline, explained Hawes: “The global shortages in the supply chain, most obviously of semiconductors, affected different companies, as always, in different ways. “Some of the small-volume manufacturers, especially those who have larger parents, were generally okay on supply, and consequently their volumes were very strong. Other companies were more exposed.” Illustrating his point, production of the Toyota Corolla at Burnaston dropped from 130,739 to 105,590 cars year on year, while Jaguar Land Rover's output was down 8.1% across its Castle Bromwich, Halewood and Solihull factories. The SMMT also blamed a succession of Covid lockdowns in China affecting component suppliers and the restricted supply of wiring harnesses from Ukraine as a factor in the downturn. There was better news to be found at the lower-volume premium marques, with Bentley and Rolls-Royce boosting volumes by around 8% (each for a second consecutive record year). However, Hawes explained that the UK’s car industry can't be wholly sustained by low-volume production, however profitable it becomes (the average Rolls-Royce sold for £430,000 in 2022). “Undoubtedly you need large volume manufacturing to sustain the supply chain,” he told Autocar. “And there are so many vehicle manufacturers that have had an absolutely torrid time because they're going further down the supply chain by definition. “It’s harder to forecast and predict what your volumes are and hence what your finance arrangements can be. So they need large amounts to sustain domestic supply chains - and you need a domestic supply chain, that’s part of the competitive offering that any location will have.” Overall, output across the ‘specialist, luxury and performance car’ sector swelled by 6.6% to 32,575 cars, which the SMMT estimates was worth a total of £3.7 billion "at factory-gate prices". But just over a week since the high-profile collapse of Britishvolt’s plans to build an EV battery factory in Blyth threw the very future of the UK’s car production network into uncertainty, the SMMT also drew attention to “the increasingly important role of electrified vehicle production to the UK economy”. Last year, roughly a third of all cars (234,066) produced here were electrified, and these accounted for 44.7% of all exported cars, which is a hugely significant tally, given that some 80% of all cars built in the UK were shipped abroad. Approximate investment into the electrification of the UK’s automotive industry totalled £4.5bn last year, most significantly £230m into Ford’s Halewood site, £500m from JLR and £2.5bn from Bentley. But the need to attract new investment is especially acute as the end of ICE car sales and tighter trade rules loom large. “The key issue for us, as we've seen over the last few days,” Hawes said, referencing Brithshvolt’s collapse, “is the importance of attracting investment and being competitive.” Investment into local production – of both cars and the batteries needed to power them – is crucial, because EU rules of origin coming into force next year will impose heavy export tariffs on any EV that's built in the UK but not powered by a locally made battery. It's generally understood that volume production of EVs in the UK will require a domestic network of battery factories with a total output of 100GWh by 2030. Hawes was optimistic about the potential to achieve this investment, saying: “We certainly believe that there's opportunity to grow the industry. We need to attract investment as we increasingly electrify the products we make. We need investment in battery facilities. “We still believe that [the UK] can be an attractive place to invest in automotive, because the fundamentals are really, really strong in terms of the brands we have, in terms of engineering excellence, in terms of the labour force, the skill levels and the flexibility we have. But we need the framework to support that.” Hawes said that work needed to be done to create an attractive framework for existing stakeholders to strengthen their commitments to the UK and for new investors to consider entering the UK. Examining the UK’s business-rate structure and commercial energy costs and the upskilling of the labour force to support the shift away from ICE will be integral to achieving this. Hawes also raised the question of how the UK government could look to safeguard the domestic industry in the face of a shift towards protectionism in other countries. The US's new Inflation Reduction Act (IRA) “clearly has the potential to suck up investments”, he said. “If you want an incentive to sell electric vehicles in the US, you need to make the vehicles there, you need to source the components there, especially batteries, and that will attract global investment into the US.” He claimed the EU is looking into how it will respond to the IRA, saying: “We need to be doing something to signal that we will support that. This industry needs to be competitive and needs to be part of the dialogue. It needs to be on the agenda for inward investment.”