The British automotive industry breathed a huge sigh of relief on seeing a Brexit deal concluded. In my experience, car and bus makers are pretty resilient, but the last four years have been a strain; not so much at the prospects of the eventual terms, but at the uncertainty leading up to it.
Given that a deal revolving around sovereignty inevitably meant trading something in return, the impact on automotive is pretty insignificant.
The key point is no tariffs, which would almost certainly have made the UK uncompetitive.
In the detail, the resultant rules of origin are less onerous than expected; this is especially true of the exemption given to the origin of batteries in the short term and the phasing in period of declaring parts origin.
The negatives include the paperwork will be a bit more complicated, but if we had known that to be the outcome four years ago, I’m pretty sure all the car companies would have signed up.
So, should the British car industry celebrate? Well in truth, it cannot. In fact, as one problem is solved, others come to the forefront.
First, the free-trade agreement between the EU and Japan means that vehicles sourced from Japan will not be tariffed. This means that it's potentially cheaper to source cars from Japanese factories rather than UK ones.
This, I would hazard a guess, was a key point in Honda's decision to close its plant in Swindon, England.
UK plants will need to be more efficient than ever, but this pressure will come during a period of time when the industry retools itself to become electric. That is the so-called "kicker" in the Brexit agreement.
The transition agreement in non-UK/EU battery sourcing is short and in steps. Batteries will at first be allowed to contain up to 70 percent of materials from countries outside the EU or the UK.
However, starting Jan. 1, 2024, that requirement will become 50 percent or companies will face a 10 percent tariff on cars exported to the EU.
The transition agreement finishes in 2026 and this will mean that sourcing battery materials from within the UK or EU will be the only realistic option for UK automakers to avoid EU tariffs.
Today, most battery cells are sourced from China, Korea or Japan. Neither the UK nor the EU currently has domestic supply.
The EU is reacting now and is stimulating the establishment of battery gigaplants across the member states. One of these projects is InoBat Auto, aiming to serve the European market in 2021. The company has bigger ambitions, but perhaps key is the establishment of its own battery chemical intellectual property rather than relying on IP licenses from the Far East.
Regrettably, the UK has no contemporary gigaplants aside from the one built (where I led the project) for the Nissan Leaf in Sunderland, which is now 10 years old.
To serve UK production, it is estimated that at least four additional gigaplants would be needed. The problem is that these factories do not get built overnight.
Therefore, it would be nearly impossible to meet the 2024 interim deadline.
Batteries are also expensive and difficult to ship and are thus usually built close to the car production plants.
What does it mean? If the UK does not build gigaplants quickly, it will lose its vehicle manufacturers to countries where they can get local batteries.
Now is the time for a major initiative from the UK government to stimulate investment into battery chemistry IP and gigaplant production. Otherwise, the UK is at risk of losing its automotive and 800,000 jobs that go with it.
