Last year was the worst for the UK car industry since 1956 – a sobering reality. But facing 2022, the semiconductor shortage is easing, Brexit uncertainty is largely (if not totally) gone, Covid-19 is getting under control, electrification is hitting fourth gear and the industry is building many more trucks and cars, with help for companies to transition to supply electrified car components. Will Stirling reports
The MTD brands – MTDCNC, MTDMFG and Factory Now – take an unapologetically positive view of the manufacturing sector, but there is no escaping that automotive has had a brutally tough three years. Covid, Brexit, supply shortage issues especially for semiconductors, Honda’s decision to leave the UK, all conspired to make 2021 the worst in the UK vehicle sector since 1956. Output fell to 859,575 units, down 6.7% on 2020 and 34% lower than pre-pandemic 2019. We’re not alone: it was Germany’s worst year for ‘das Auto’ since the mid-1970s.
So, let’s talk about the positives.
Long term, automotive is now largely about the transition to electrification, which provided a welcome fillip to counter the gloom: 29.6% of all vehicles sold in the UK last year were electric or hybrid electric (source: SMMT) and over a quarter of the vehicles made in the UK now are electrified, including a record number of battery electric vehicles. On top of this, £4.2 billion of new investment was announced in FY2021, a big number although we must remember little had been announced in three years before due to Brexit uncertainty and then Covid. Mike Hawes, CEO of the SMMT said the new money was a release valve and a vote of confidence in the UK car industry.
And commercial vehicle production rose 11.3% in 2021, although this is comparing it to 2020, a very difficult year. The decision to leave the European Union was taken six years ago – that seems a long time ago now. But Brexit has not changed where UK-made vehicles go; both trucks and cars are wedded to Europe, 80% of passenger cars to go mainland Europe.
The single factor most affecting this sector, even more than Brexit and Covid (although they are all intertwined) is semiconductor shortages, a global problem. Two things happened: as lockdown bit, both online working and home entertainment drove the demand for more personal computing, game consoles, servers and accessories, all of which needed semiconductors, sucking supply from the automotive sector. Then in the middle part of 2021, the Delta Covid variant was hitting those countries in the world that manufacture most of the semiconductors; Taiwan, Vietnam, South Korea and China, forcing many of those factories to close.
And, according to the SMMT, the semiconductor crisis masked other problems in the global supply chain: other raw material shortages, shipping container shortages, very expensive air freight, the huge shortage of HGV drivers, and so on. All this negatively affected automotive production.
The past is behind us: now what?
So, 2020-2021 were bad years for automotive and global logistics, give me some reasons to be cheerful.
Here are a few big ones:
1. 2021 was the lowest annual vehicle production in the UK for decades; just 859,575 units were built in 2021. As the problems listed above ease, even accounting for the loss of Honda as a UK-based manufacturer, production will rise, demonstrated by the £4.2bn invested in 2021 and then there is the investment to come this year. If your company supplies to automotive, 2022 will be a much better year. The latest independent production outlook for 2022 forecasts car production to increase to over 1 million units, a 19.7% increase on the 2021 total, despite the loss of Honda in Swindon.
2. The car majors report conditions are improving: Nissan, the UK’s biggest carmaker, released a press release in January saying the future looks bright. “Our world first EV36Zero project will transform Nissan Sunderland into a flagship EV [electric vehicle] hub, and our top class team is pushing ahead with this vision which brings together electric vehicles, renewable energy and battery production, and sets a blueprint for the future of the automotive industry,” said a company spokesman.
3. The semiconductor shortage is expected to improve as capacity recovers with the control of Covid.
4. Battery factories are being constructed: although we are coming from a low base; as a proportion of the size of its car industry, Britain has the fewest new battery ‘gigafactories’ with planning permission in Europe. Why are they gigafactories? It refers to the amount of power the annual production of batteries can create, measured in gigawatts.
5. The biggest player in the battery revolution, Britishvolt, is powering ahead with plans for its first full-scale electric vehicle gigafactory in Northumberland after the project received an offer of government funding of up to £100m. In January Britishvolt also confirmed a long-term partnership with Tritax, an investment trust manager that will deliver £1.7bn in private funding to support the factory build and product development, as well as to develop the associated supplier park.
6. Production is up at JLR, which has claimed it is the biggest investor in the UK car industry, and quarterly losses have narrowed. Orders at JLR were also boosted by its new flagship Range Rover model. Production was over 40% higher last quarter than in the previous three months, JLR reported in late January.
7. Now that Brexit uncertainty is largely gone, investment has been unlocked, much of which will help transform the sector to eventually become net zero. “This is a vote of global confidence in the UK, but must be matched by a commitment to our long-term competitiveness; support for the supply chain in overcoming parts shortages, help with skills and training and, most urgently, measures to mitigate the escalating energy costs which are threatening viability,” said Mike Hawes, CEO of the SMMT.
There are also lots of anecdotal good news stories in UK auto. Anglo-Korean battery company Eurocell will build its next gigafactory in Europe – and the UK is on the shortlist, along with the Netherlands and Spain. There is an initial £600m investment planned over two phases, it plans to supply European energy storage, automotive, and e-mobility applications.
With electrification dominating, new business opportunities will be about both supplying parts for the recovering petrol/diesel engine (ICE) vehicles for the next 10 to 13 years, as well as securing new business with electric platforms. Some product families – injection moulded parts like wind mirror casings, and engine electric connectors and housings – are easier to modify on the machine tools than others. From 2035, the target year to stop production of ICE-only engines, no-one will need new cylinders and piston rods. How do automotive suppliers successfully pivot to satisfy the needs of electric?
Help for companies wanting to supply electric vehicle manufacturers
The government is committing up to £1bn to accelerate the transition to electric through the aptly named Automotive Transformation Fund. The first stage is to support companies involved in the R&D and development of products involved in:
-Batteries including cells (’gigafactories’)
–Electric machines and drives
–Power electronics
–Fuel cells
–Upstream supply chain for any of the above
Much of the work of the ATF is administered by the Advanced Propulsion Centre based at the University of Warwick. For more information, use these links:
Useful links
Automotive Transformation Fund – https://www.apcuk.co.uk/automotive-transformation-fund/
Expressions of interest to apply for funding – https://www.apcuk.co.uk/expression-of-interest-competition/
SMMT – Motor industry facts 2021 – https://www.smmt.co.uk/reports/smmt-motor-industry-facts-2021/
