4:22 pm, March 11, 2021
Professor David Bailey of the Birmingham Business School and a senior fellow at the UK in a Changing Europe on how you solve a problem like Ellesmere Port
In a fascinating earnings call with investors, Carlos Tavares – CEO of Stellantis – recently made it clear that the firm had been ready to invest at Ellesmere Port until the government announced its 2030 ban on the sale of petrol and diesel cars.
He added that future investment now depends on the government offering commitments on support.
The UK and EU concluded a Trade and Cooperation Agreement (TCA) late last year, which was expected by many to give the green light to major auto investment by the likes of Nissan and Stellantis.
Nissan is indeed going ahead with Qashqai production in Sunderland, while Stellantis has yet to commit, having postponed the decision from 2020 owing to Brexit uncertainty.
Now Tavares says that the government’s ‘brutal’ decision to bring forward the 2030 ban forced the firm to abandon the project earmarked for Ellesmere Port, even though a Brexit trade deal has avoided tariffs and quotas.
He said: ‘We immediately suspended the decision on that project… we are not going to invest in the UK market on a product that is going to be banned from 2030 onwards.’
The positive decision from Nissan was widely expected given that the firm had invested some £400m in its Sunderland plant, but big investment decisions lie ahead elsewhere in the industry.
First up is Ellesmere Port as a test case, and the government will be keen to agree a deal with Tavares to keep Stellantis assembly going there and safeguard 850-1,000 jobs, and more in the supply chain. Closure so soon after Brexit wouldn’t give a great impression for UK auto’s prospects.
Talks are ongoing, with Tavares saying that ‘we have discussions with the UK government, they are collaborative, productive, open minded, but this is a business.’
He added that Stellantis will not invest ‘if it doesn’t make economic sense’.
‘An investment of this type, on top of what is already planned for continental Europe, does not make industrial sense because we have enough capacity elsewhere,’ Tavares added.
‘If we do it, it will have to be with support from local authorities. This support needs to be concrete, binding, and not just a communications gambit.’
Batteries
Meanwhile, the Business Secretary Kwasi Kwarteng recently told the House of Commons that the government is ‘committed to ensuring the future of manufacturing’ at Ellesmere Port and also to develop a local battery-making industry.
The latter is critical going forward. By 2027, there has to be 55% local content for battery electric vehicles, and that the batteries themselves will need to be assembled in the UK or EU for these to qualify for tariff-free trade. This will pose a particular challenge for UK auto and industrial policy.
The UK is lagging behind EU countries in attracting investment in battery making capacity, and without a major effort to reorientate the auto supply chain (via inward investment from battery makers and EV suppliers), UK car assembly will be increasingly dependent on imported components from the EU to meet rules of origin rules going forward.
Alternatively, car assembly might simply shift to where the batteries are being made cheaply in the EU given that batteries are heavy and expensive to move around.
The bottom line is that making batteries at scale and cheaply is an existential issue for the mass UK car industry.
If the government is serious about supporting battery gigafactories in the UK, there is much that it could do to push this along through state aid interventions such as grants, enhanced capital allowances and loan guarantees.
On a positive note, the recent Budget introduced ‘super deductions’ or accelerated capital allowances to boost investment.
This has been criticised as an inefficient form of government support, but given the UK’s weak record on business investment, it is well worth trying.
And while the ‘super deductions’ policy is spatially blind, there might be an inadvertent ‘levelling up’ benefit given that capital intensive manufacturing will probably gain the most from the move, and such manufacturing is more heavily concentrated outside London and the south-east.
While the government has set an ambitious target of banning the sale of petrol and diesel cars by 2030, there isn’t much of a road map of how we get there.
A much more holistic approach is needed to encourage people to switch to EVs, develop the charging infrastructure that we will need and to help the industry and workforce make the transition. On that the Budget missed an opportunity.
