David Bailey considers what Tata’s recent pledge to build a £4bn electric car battery gigafactory in Somerset means for the UK’s efforts to develop its electric vehicle capacity, in the context of stiff international competition.
Tata’s recent decision to build a ‘giga-factory’ to make batteries for electric vehicles (EVs) in Somerset rather than Spain is seen as the most significant investment in UK automotive since Nissan first came to the UK decades ago. It is a major boost for UK automotive.
When fully up-and-running, Tata’s giga-factory could produce up to 40 gigawatt hours (GWh) of battery capacity a year, or 30-40% of the UK’s long-run forecast battery-making capacity needs.
The investment will create thousands of jobs in the UK battery assembly and provide a clear demand for battery supply chain firms to invest in the UK. The hope is that this will lure further investment to the UK.
It will also safeguard many more jobs by anchoring Jaguar Land Rover (JLR) vehicle assembly in the West Midlands and Merseyside. It was feared that a Tata investment in making batteries at scale in the EU could presage JLR EV assembly shifting there over time, given that batteries are heavy and expensive to move around.
More broadly, the decision is seen as key for UK auto given that the UK has been lagging behind in building battery giga-factories. The collapse of would-be EV battery maker Britishvolt into administration earlier this year was not much of a surprise but it still added to the prevailing sense of gloom surrounding UK auto.
That – like electric van maker Arrival’s decision to shift electric van production to the US, and MINI pulling the plug on third generation MINI EV production at Oxford – badly dented the UK government’s EV hopes for UK automotive.
Meanwhile, the EU has been charging ahead – quite literally – with some 35-40 battery giga-factories built, under construction or planned across the EU. Prior to the Tata decision there was just one planned in the UK, at Sunderland, by the battery firm Envision, working with Nissan which could top out at a capacity of 25Gwh a year by 2030.
Under Biden the US is investing heavily in green technologies including battery plants, supported through its game-changing $370bn Inflation Reduction Act and $40bn Chips and Science Act. China meanwhile has been building battery plants for years, and now accounts for almost 70% of global battery making capacity.
While the Tata investment is hugely significant, it’s clear that the UK will need to build more battery capacity as demand for EVs takes off, and given the nature of the Trade and Cooperation Agreement (TCA) between the UK and the EU. That’s because the TCA requires that by the end of 2026 the batteries in EVs have to be assembled in the UK or the EU to qualify for tariff-free trade between the two.
And from 2024 onwards, more local content will anyway be required under rules of origin requirements in EVs being sold between the UK and EU and vice-versa, otherwise 10% tariffs will apply. This prompted multinational auto manufacturer Stellantis to call for a rewriting of the TCA agreement to delay such tougher local content rules coming into force, a call which has been echoed by German auto manufacturers.’
Without a significant effort to reorient the auto supply chain, UK car assembly will depend on imported EV components from the EU to meet rules of origin requirements. As noted, that isn’t going to make much business sense.
So, it is mission-critical for batteries to be made at scale in the UK. Making that happen requires the government being actively involved in discussions with auto assemblers and battery makers in order to attract potential investors, most likely from Korea and China. That will need a more active industrial policy than we currently see in the UK.
While industrial policy is back on the agenda in the US and EU, the UK scrapped its industrial strategy under the Johnson regime. More recently, Chancellor Jeremy Hunt said earlier this year that he would wait and see what the EU will do on its green industrial policy before acting. If Brexit was meant to enable a quicker and more distinctive British approach to policy, including industrial policy, this seems an odd way of showing it.
The Tata investment is of course being heavily supported by the UK government – reportedly to the tune of £500m. That gobbles up about half of the government’s £1bn Automotive Transformation Fund to support the sector.
Given that further giga-factories will be needed to anchor auto production in the UK (think of Stellantis, Toyota, MINI and other smaller players), then the government is likely to have to stump up significant further support if it wants battery making and EV assembly in the UK.
It will also need more creative thinking about how to target financial support to help investment. For example, the European Investment Bank (EIB) has been a major backer of gigafactory building in the EU.
The UK Infrastructure Bank, set up in 2021 but only given a statutory footing and clear powers to tackle climate change a few months ago, could in theory play a similar role in the UK going forward. It has been granted £12 billion of capital to deploy, with the capacity to issue £10 billion of government guarantees.
This isn’t about ‘picking winners’ in a top-down industrial policy sense. Demand for EV battery production in the UK is expected to reach some 100-130GWh per year by 2040. McKinsey suggests big investment (as high as £18bn) is needed by 2040 into battery manufacturing in the UK.
As well as Tata and Envision/Nissan, another 65GWh a year of capacity could be needed (equivalent to three or four medium sized giga-factories). Policy here should be about setting a clear direction of travel to underpin business confidence and to speed up investment in the green technologies needed to reach Net Zero by 2050.
The bottom line is that if the UK wants to see significant EV production in the UK in the future, then it will need batteries made here too, and on a large scale. The Tata investment is a big step forward, but more will be needed.
By Professor David Bailey, Senior Fellow, UK in a Changing Europe.