🎧 Revival has traction as Tata drops the mic for car industry

Car production climbed 16.2% in June 2023 compared to a year ago; total output for the first half-year is up 11.7%; electric and hybrid cars produced rise by 71% a month (year-on-year); and vehicle exports are up nearly 14%. The stand-out news, however, is Tata’s game-changing £4bn investment in a battery gigafactory. By Will Stirling

UK car production rose nearly 12% in the first half of the year to 450,168 units with June up 16.2% – the fifth consecutive month of growth, according to the latest figures published by the Society of Motor Manufacturers and Traders (SMMT). The performance represented the best first half since 2021, as manufacturers were increasingly able to manage global supply chain challenges – notably the shortage of semiconductors that had constrained production since the pandemic. 

These numbers were announced in July, a week after the announcement that Tata Sons, Jaguar Land Rover’s parent company – will build a massive new gigafactory for the UK, helping anchor EV production for one of Britain’s biggest car makers. Overall, the latest independent production outlook anticipates UK factories around 860,000 cars this year, up 10.9% on 2022. This is a welcome jump from the nadir of 2022, when British car manufacturing fell to the lowest level since 1956 – 775,014 cars were produced. Car exports were also up 13.6% in 2023, with 359,940 shipped worldwide.

While factory production was up for five months straight, the story within the story is the increase in electric and hybrid car production.

UK car makers are manufacturing more low-carbon vehicle models than ever, with production of hybrid electric, plug-in hybrid and battery electric vehicles (BEVs) up a whopping 71.6% from January to June to a record total of 170,231 units. This is more than a third, 38% of all cars produced so far in 2023, good news given the importance of car manufacturing to the future of the industry and wider society in driving down carbon emissions.

In terms of registrations, or sales, the biggest increase in June was for BEVs, which posted an 87.9% increase to account for 16% of all new registrations for the month, a market share broadly consistent with that for the full year.

The news that shook the car industry like an earthquake, however, was Tata’s decision to build a new £4bn gigafactory in Somerset. Spain had been the other contender. One insider said this project has been seven years in the planning, but the location may have still been an open call until a few weeks before the story broke in mid-July. Champagne all-round in the beleaguered car industry, reeling from semiconductor shortages, Brexit and low post-covid demand.

Tata could produce 40% UK battery capacity by 2030

At full capacity, the gigafactory will produce 40GW of battery cells annually. At current forecasts, this is about 40% of the 100GW/h per year the UK will need to fulfil the demand for EV batteries. That number rises to about 200GW/h by 2040. Envision AESC in Sunderland, which provides batteries primarily for Nissan vehicles, is expanding its capacity to 20GW annually, showing the work that needs to be done. The company’s strategic growth plans for its flexible manufacturing capacity will begin with a rapid ramp-up phase and the start of production in 2026.

The value of the giant factory is significant for the car industry, the local economy and also the supply chain. What can our domestic auto and chemicals industries expect from this huge investment?

Tata is expected to want to establish high UK content for the batteries because under the EU-UK Trade and Cooperation Agreement’s rules of origin (due to be applied in 2024, phased up to 2027), that mandates that a certain proportion of the value of batteries and their component materials must be sourced from the UK or EU, or import tariff’s of around 10% of the vehicle value will be applied.

“The 2024 terms look like they will not be met by many manufacturers in the UK or EU due to the delays in setting up gigafactories and their supply chains, especially during covid and the subsequent market and supply chain disruptions,” says Professor David Greenwood, CEO WMG High-Value Manufacturing Catapult and an expert on the car industry. “Unless variations are agreed by both sides then this will result in EVs becoming disproportionately more expensive than ICEs in the UK and Europe, which is clearly in no-one’s interests. There are good signs that a compromise is being negotiated.”

David adds that the 2027 terms effectively mean that for any car sold from the UK into the EU or vice versa, the cathode material must come from the UK or Europe, the cell must be assembled there, and the pack must be assembled there. This will drive investment into UK and EU supply chains over that period. At the moment, there is an insufficient supply chain in the EU, and especially the UK, so it is likely that UK gigafactories will be reliant on imported materials in their early years of operation, but that they will localise to the UK or EU by 2027 or very shortly thereafter to meet the terms of the TCA.”

Building a supply chain for UK gigafactories

The casual observer might be surprised by the UK’s core strengths in battery manufacture.

“There are very good prospects for the UK developing such a supply chain, but we have some catching up to do,” David adds. “We have access to lithium and refining capability is already planned, we have high-quality nickel refining, we have needle coke (a precursor to anode materials), we have electrolyte manufacture, and we have companies capable of making aluminium foils, cell cans and separators – although they do not currently do so. That still leaves a few gaps around materials (notably cobalt), components (like copper foil), and the processing of anode and cathode materials. That isn’t a surprise though, as such companies would want to see large-scale customers, in the form of gigafactories, before they make large-scale investments themselves, and those gigafactories are only just being confirmed now.

Home grown lithium is a major advantage for any battery manufacturing and the element is now being mined in Cornwall, by Cornwall Lithium, a joint venture between British Lithium and French mining company Imerys. The latter’s forecast production is 20,000 tonnes per year, about one-third of all UK demand or enough lithium to power 500,000 electric cars a year by the end of the decade.

Batteries need housings. A UK designer and manufacturer with the expertise and scale to supply Tata is Sertec, with 10 locations and over 2,200 employees. The company has won several UK awards for its battery components and battery casings. The factory will need high quantities of electrolytes, based on organic solvent, a liquid that bathes the lithium anodes and cathodes to conduct the flow of ions. Commentators are tight-lipped on potential chemical suppliers but a big, established supplier for batteries is Mitsui & Co. which has UK operations.

Recycling is the often neglected part of the battery lifecycle. “It’s an important way of accessing many of the materials we need in the long-term future,” says WMG’s David Greenwood. “We have some small-scale operations starting up in the UK now, but this, and the processing of the “black mass” it produces into cathode and anode precursors, will require support to grow such that it is in place and ready when required.

Planning ahead, to meet demand forecast by the Faraday Institution of 200GW/h capacity by 2040 – just 16 years away – as with Tata the government must subsidise battery manufacturing investment, as other European countries are doing and the US has with the Inflation Reduction Act measures. Hard cash is not enough, either. “If the UK is intent on maintaining a level playing field with European competitors, the UK government could consider offering subsidies that cushion against another energy price surge or help with grid connectivity to any plants that require improved access,” says Stephen Gifford, chief economist at the Faraday Institution.