Carmakers’ latest Brexit angst highlights risk of UK falling behind EV battery race

It is all reminiscent of Brexit wranglings of the past. But this time it concerns an industry of the future.

Batteries for electric vehicles must, under the Brexit agreement, source 60 per cent of their value from within the UK or Europe to qualify for tariff-free trade from 2024, a threshold that jumps again in 2027. Too much foreign content, in the jargon, and cars will face 10 per cent tariffs.

The point of these rules was to force the development of a European battery industry and its lengthy supply chain. This has not happened to the extent envisaged or required to enable the automotive manufacturers to meet the rules, say carmakers on both sides of the Channel.

“There are different constituencies, with different priorities here,” says trade expert Sam Lowe of Flint Global, noting that the battery and chemicals sectors stand to benefit from this onshoring. “But there does need to be an extension [of the 2024 deadline], otherwise you will have the absurd situation where electric vehicles traded between the UK and Europe are subject to tariffs but petrol vehicles are not.”

The UK government says it has raised the issue with the EU. But for the car sector, this latest wrangle should shine a spotlight on the lack of effective planning around UK battery production and supply chains — at least according to a remarkably gloomy parliamentary hearing last week. The UK is a “bystander in the global battery arms race”, said Simon Moores, of Benchmark Mineral Intelligence.

The US and, increasingly, the EU are throwing money at securing the critical minerals needed for batteries, and the refining, processing and chemical plants required to produce them. It is a supply chain, that from lithium refining to battery cathode, anode or electrolyte production, is currently dominated by China, with north of 70 per cent global market share in most of its stages.

The visible tip of this iceberg are the gigafactories that produce the ultimate battery pack. Europe, said Stephen Gifford at the Faraday Institution last week, has 30 in the pipeline, compared to the UK’s one (or maybe two). Faraday estimates that UK demand, more than half of which will come from private cars, could require 10 new gigafactories by 2040 each with a capacity of 20GWh, compared to the UK’s total current capacity of 2GWh.

The UK has not successfully struck deals with established Asian battery manufacturers to build here, nor nurtured riskier start-up options as the failure of Britishvolt showed. Last week Germany pledged hundreds of millions of euros in subsidies to secure a project by Northvolt, after the Swedish company said it could prioritise the US. 

Gigafactories alone will not cut it, as the carmakers’ Brexit angst shows. To qualify for future tariff-free treatment will require multiple chemical processes and manufacturing steps to happen locally, before the end battery is put together.

Car production is likely, over time, to migrate to wherever that is possible. Just as carmakers want to be close to gigafactories, gigafactories want the midstream in proximity, who in turn want reliable sources of raw and refined materials. In effectively building a new industry from scratch, it all has to happen together.

The UK, according to the experts last week, has barely started. The country “doesn’t have a runner in this race,” said Moores, while a fellow panellist described the government’s critical minerals strategy as a “wishlist with no substance in terms of financing”.

Jeff Townsend, of the Critical Minerals Association, applauded the government’s newfound if belated appreciation of the issue but memorably added, “without the money to back it up, it’s just words — and not since Genesis, chapter 1 verse 3 has someone said something and it’s actually happened”.

That will resonate with other sectors frustrated with endless consultations, an absence of consistent long-term planning or industrial strategy, and an ideological reluctance to put money behind aspirations.

For the UK carmakers, the question is not really whether they can meet this set of Brexit requirements. It is whether there is much chance of the UK battery sector developing sufficiently to help them to meet the next ones.

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