Industrial Strategy can be springboard for UK auto success

Success depends on right conditions and the inclusion of automotive in proposals to bring down energy costs, given UK pays highest prices – and taxes – in Europe. Market stimulus essential as manufacturer discounting continues to shore up EV demand but has placed £6.5 billion mandate bill on companies. News comes as SMMT unveils blueprint for auto success and national renewal – The Competitive Edge: Driving Long-Term UK Automotive Growth. The UK automotive industry has pledged to build on the foundations laid by government’s landmark Industrial Strategy – published yesterday – with a 10-point plan to propel the UK back into the top 15 of global vehicle manufacturing locations by 2030 and deliver a £50 billion economic boost over the next decade.1
 
Speaking at the industry’s annual Summit in London today, Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), welcomed the news saying, “Government’s long-term Industrial Strategy, including the Drive35 £2.5 billion auto capital and R&D fund, recognises automotive as a pillar of advanced manufacturing, integral to the world leading innovation that creates the high value jobs, wealth and economic growth that are vital to our country’s future. Now we must make the most of that position and put in place the right conditions for growth.”
 

The strategy comes as a new SMMT report, The Competitive Edge: Driving Long-Term UK Automotive Growth, sets out a path to success. The report, which features SMMT’s first UK Automotive Business Leaders Barometer, charts the industry’s fundamental strengths and potential, with more than half of businesses having recently secured, or planning for, investment. But it also reveals, unsurprisingly, low confidence in global trading conditions and doubts about the ability to meet net zero ambitions, amid rising costs and falling profitability.
 
Almost three quarters (73.5%) of the CEOs surveyed said their business costs had increased in the last year, with 46.9% reporting falling profits.2 The sector also faces some of the world’s toughest market regulation and compliance costs – factors which must be addressed urgently to create a level playing field that anchors existing investors and creates the right conditions for further growth.

 
UK automotive manufacturers pay more for electricity than anywhere else in Europe – more than double the average – due in part to energy taxes six times higher, which added over £200 million to manufacturers’ bills last year alone.3 Rapid implementation of the reforms to industrial energy costs set out in the Industrial Strategy would cut the sector’s electricity bill by a fifth, helping ease this structural disadvantage. To level the playing field, however, the proposed relief on standing charges – which will apply to battery manufacturing – should also benefit automotive manufacturing, given the sector will  become more electricity-dependent as it increasingly builds EVs.
 
Current uncompetitive production costs must also be set alongside uncompetitive market costs.  Manufacturers have incurred a £6.5 billion electric vehicle incentives bill over the last 18 months to shore up EV demand that remains stubbornly behind mandated government targets – with more than half (52%) of CEOs believing the UK is significantly behind track to meet the 2030 end of sale date for new cars powered solely by combustion engines.4 Consumer demand has been further damaged by governmental disincentives such as the VED Expensive Car Supplement (ECS), estimated to impose an effective fine of more than £360 million on EVs bought from April this year.5
 
Bold government action to drive up demand for the electric vehicles which manufacturers are compelled to sell is essential, requiring a package of consumer support measures, including amendments to the ECS and cuts to VAT on new EVs and public charging. This would help deliver a vibrant domestic market which is not just a leader in decarbonisation but in affordability.

 
There is room for optimism, however, as recent UK diplomatic successes – the deal with the US, which significantly reduces a tariff cost that would have threatened industry viability, as well as the FTA with India and an EU reset – will undoubtedly help put the UK in a more advantageous position. Together with rapid measures to reduce electricity costs and business rates, reformed capital allowances and a reskilled workforce, the sector’s competitive edge would be restored, providing an additional £50 billion economic windfall and delivering the UK’s net zero ambitions, while returning the UK to the top 15 of global auto manufacturing locations for the first time since 2018.
Mike Hawes, SMMT Chief Executive, said, “We welcome the Government’s Industrial Strategy, a 10-year plan which answers our call for a long-term commitment to automotive manufacturing. With action to reduce electricity costs, upskill workers and unlock finance, it lays the foundation on which we can build our future. We now need to see the Strategy implemented and at pace, because competitors will move fast so our window of opportunity will not remain open for long. The prize, however, in terms of jobs, innovation and economic growth – green growth at that – is worth the investment.”

The Competitive Edge: Driving Long-Term UK Automotive Growth sets a joint challenge to return the UK to the Top 15 global automotive manufacturing locations by 2030 with 10 recommendations to deliver as part of an Industrial Strategy, as follows:

1.      Introduce transformative new support to supercharge the market, including a major purchase incentive scheme for consumers for the duration of the mandate, and maintenance and extension of support for harder to decarbonise segments.
2.      Publish a clear roadmap for bus, coach and heavy-duty vehicle decarbonisation co-developed with industry.
3.      Ensure everyone has a ‘right to charge’ by mandating delivery of public charging and refuelling infrastructure across the UK.

4.      Ensure the UK’s competitiveness prospectus and role of the Office for Investment to promote the UK’s offer is geared to support new and existing investors.
5.      Reduce the cost of energy and support manufacturers to remain internationally competitive.

6.      Provide step-change supply chain funding to de-risk private investment into competitiveness building activities.

7.      Follow through on the promise to allow 50% of the apprenticeship levy to be spent on non-apprentice training.

8.      Maximise and develop the EU-UK economic relationship to protect and grow the European automotive sector.

9.      Deliver on the foundations of the UK-US Economic Prosperity Deal to maximise automotive exports.

10.   Secure trade agreements with new and existing trading partners which place automotive at their core.

 
SMMT and the UK automotive industry
 
The Society of Motor Manufacturers and Traders (SMMT) is one of the largest and most influential trade associations, representing the automotive industry in the UK.

The automotive industry is a vital part of the UK economy, integral to growth, the delivery of net zero and the UK as a global trade hub. It contributes £93 billion turnover and £22 billion value added to the UK economy, and invests around £4 billion each year in R&D. With 198,000 people employed directly in manufacturing and some 813,000 across the wider automotive industry. Many of these automotive manufacturing jobs are outside London and the South-East, with wages that are around 13% higher than the UK average. The sector accounts for 13.9% of total UK exports of goods, with UK-produced vehicles traded globally, generating £115 billion of trade in total automotive imports and exports.
The UK manufactures almost every type of vehicle, from cars, to vans, taxis, trucks, buses and coaches, as well as specialist and off-highway vehicles, supported by more than 2,500 component providers and some of the world's most skilled engineers. In addition, the sector has vibrant aftermarket and remanufacturing industries. The automotive industry also supports jobs in other key sectors – including advertising, chemicals, finance, logistics and steel.

More detail on UK Automotive available in SMMT's Motor Industry Facts publication at www.smmt.co.uk/reports/smmt-motor-industry-facts/