The UK auto industry is facing a set of problems which could lead to a serious decline in production and employment: it is lagging behind European competitors in managing the transition to electric cars; Brexit has made the UK a less attractive investment location for non-British manufacturers; and there is some uncertainty over the future direction of Jaguar Land Rover, the largest employer among the UK-based car assemblers.

Given the industry’s economic and political importance – it has nearly 200,000 employees, mainly in the Midlands and the North – the government is bound to be involved in finding a way through these problems. Its ability to do so is complicated by the fact that the industry is almost entirely foreign owned. The big assembly plants are run by multinational companies which also have factories in the EU and elsewhere and are not necessarily committed to the UK.

Part of the rationale for the Faraday Battery Challenge, launched by Theresa May’s Conservative government in 2017, was to create a domestic supply chain for car batteries and thus make it more likely that the assemblers would make their electric cars in the UK rather than elsewhere. There was also a hope that one of the big Asian battery producers such as Samsung might be induced to build a gigafactory in the UK. 

That latter hope was disappointed. The Asian companies preferred to invest in the EU, mainly in order to be near the big German auto industry.  The one British success was the decision by Nissan to make its first electric car at its Sunderland plant. This was linked to a small battery factory, built by AESC, a separate company which was then partly owned by Nissan; that company was later acquired by Envision, a Chinese renewable energy group. In 2021 Envision announced plans to build a full-scale gigafactory, the first of its kind in the UK, in Sunderland.

That decision was welcomed by the government, but one gigafactory would not be enough to supply the predicted volume of UK-built electric cars as the transition away from petrol and diesel engines continued. Attention then turned to a new entrant, Britishvolt, which had ambitious plans to build a gigafactory in the north of England. This firm made a promising start, and it won a provisional grant from the government. But it was never able to raise the capital that it needed, and it went into administration at the start of 2023. As things stood when this paper was written, prospects for a second UK gigafactory seemed to depend on whether Tata, the Indian conglomerate which owns Jaguar Land Rover, would build one.   

Meanwhile some 25 gigafactories are in operation, under construction or planned in the EU. The extent of the UK’s lag has prompted criticism of the government for not doing enough, through subsidies and in other ways, to promote investment in car batteries. Yet the principal reason why the Asian companies went to the EU and not to the UK was not the size of the subsidy but the size of the market – and the proximity of the big European car makers. That was an advantage which the UK could not match.

Gigafactories are only one part of the battery supply chain, and UK-based battery component makers, often with help from government, have made good progress in the last few years, some of them working on novel battery technologies. Many of these firms have their eye on international customers – car makers and battery manufacturers which are looking for ways of improving battery performance. Whether more gigafactories are built in the UK is not crucial to their future.

A promising battery sector is taking shape in the UK, but the lag in gigafactories remains a matter of concern. This paper argues that the UK should not try to match the subsidies that are available in the EU and the US but should focus on other ways of encouraging investment, and on removing obstacles – most obviously high energy costs – that put UK-based battery firms at a disadvantage. Self-sufficiency in all phases of the battery supply chain is not a realistic objective; even if more gigafactories are built the UK will remain a significant importer of battery components and materials.

What is also important, for this and other industries, is a greater degree of stability in government policy. The erratic conduct of UK industrial policy over the last two years has been confusing for business and bad for investment. The government is right to support the auto industry as it makes the transition to electric vehicles, but that support must be consistent, and based on a realistic assessment of where the industry now stands and how best it can compete in the world market.