UK Car Production Surges, Yet Brexit Rules Loom as a Potential Threat

Line of newly manufactured cars

In September, the UK’s car manufacturing industry witnessed a remarkable upswing, with production surging by an impressive 39.8%, the strongest month of growth in 2023.

During this period, over 88,000 vehicles rolled off British factory lines. This figure represents a significant increase of 25,105 vehicles compared to the same month in the previous year, according to the latest data provided by the Society of Motor Manufacturers and Traders (SMMT).

The United Kingdom’s automotive industry is experiencing a resurgence, with car production soaring to new heights. But as the sector enjoys a rebound, there’s a looming cloud on the horizon – the potentially disruptive changes brought by Brexit rules. In this article, we’ll explore the recent surge in UK car production and the concerns expressed by the industry regarding Brexit’s impact.

Mike Hawes, SMMT Chief Executive, said, “A particularly strong period of car making is good news for the UK, given the thousands of jobs and billions of pounds of investment that depend on the sector. With countries around the world shifting to zero-emission motoring, Britain is well-placed to be a global EV manufacturing hub if the investment and trading conditions are right. Given the increasing importance of electrified car production, the first and urgent step is for the UK and EU to agree to delay the tougher rules of origin requirements that are due imminently. This would give the necessary breathing space for automotive sectors on both sides of the Channel to scale up gigafactories and green supply chains, both of which are essential for a stable, long-term transition.”

One standout feature in the UK’s automotive renaissance is the growing focus on electric vehicles (EVs). As the world shifts towards sustainable transportation, British car manufacturers have made significant investments in EV production. This strategic approach aligns with global efforts to reduce emissions and transition to cleaner mobility. It also caters to the evolving preferences of consumers who are increasingly embracing electric and hybrid vehicles.

Nissan Leaf EV cars on the production line

While the surge in car production is undoubtedly positive news, the industry remains cautious about the future. One looming concern is the impact of the Brexit trade regulations set to take effect in January 2024. Since the UK officially exited the European Union, businesses have had to navigate new regulatory frameworks and trade agreements. The car manufacturing sector, which heavily relies on cross-border supply chains for components and exports, is particularly sensitive to changes in trade rules. Brexit has ushered in additional paperwork, customs checks, and other complexities that risk disrupting the seamless operation of these intricate supply chains. The potential for delays and increased costs in the movement of parts and finished vehicles has raised red flags within the industry.

These regulations stipulate that an electric vehicle (EV) must contain at least 45% of its value originating from the EU or UK to circumvent a 10% trade tariff. However, meeting this requirement is more challenging for electric cars and vans since the majority of manufacturers heavily rely on batteries produced in Asia, and these components represent a significant portion of the overall value of such vehicles.

China is renowned for its cost-effective electric vehicle (EV) production, surpassing other global regions in terms of affordability. This achievement is largely attributed to Beijing’s long-standing industrial promotion policy, characterised by incentives and subsidies. These incentives have propelled China to not only become the largest EV market globally but also secure a substantial foothold in the global EV supply chain, encompassing vital raw materials. As a result of these cost and supply chain advantages, foreign companies have been lured to establish manufacturing operations within China. One of the most prominent examples is Tesla, whose expansive facility in Shanghai recorded an impressive production output, exceeding 700,000 vehicles in 2022. This underscores China’s pivotal role in the EV landscape, driven by its exceptional production efficiency and strategic positioning in the global industry.

The Labour leader Sir Keir Starmer has said in an interview that his party would seek “a better deal than the one that we’ve got” emphasising that supply and chains all need to be improved. Starmer adds that he intends when renegotiating, the aim is to obtain closer trading relationships. He goes on to note that he believes “not many people look at that deal and think it is working very well”, and “there is a lot of work to do there… to improve and clean up the mess and then power our economy forward”

This development follows the recent warning from Stellantis, which counts Citroen, Fiat, and Peugeot among its portfolio of brands. The company has alerted the UK Government that its commitment to establishing electric vehicle (EV) production in the UK could be jeopardised unless there’s a renegotiation of Brexit trade regulations. In 2021, Stellantis had declared a £100 million investment in Vauxhall’s Ellesmere Port manufacturing facility to establish a new electric vehicle (EV) factory. Stellantis emphasised in its submission to a Commons inquiry into EV production that its UK investments were primarily designed to align with the stringent requirements of the post-Brexit free trade agreement. However, it highlighted that it’s currently unable to comply with these rules of origin due to the significant increases in raw material costs and energy prices. Consequently, the automaker is urging the government to renegotiate with the EU, proposing the retention of existing regulations until 2027. It is also seeking a review of the arrangements for manufacturing parts in Serbia and Morocco.

The surge in UK car production is a testament to the resilience and adaptability of the nation’s automotive sector. It’s a clear indicator of the industry’s willingness to innovate and evolve to meet the changing needs of the market, particularly the growing demand for EVs. However, the challenges posed by Brexit rules cannot be understated. The industry’s growth could be significantly hampered if these issues are not addressed effectively. Clarity, cooperation, and comprehensive strategies will be essential in ensuring the continued success of the UK’s car manufacturing sector.

As the sector navigates this complex terrain, it remains to be seen how it will balance its recent resurgence with the persistent uncertainties related to Brexit. The coming years will be crucial in determining whether UK car production continues to rev up or faces roadblocks due to trade and regulatory hurdles.