Britain should not gamble with its car industry again

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Winter is coming and the mood among parts suppliers to Nissan’s car plant in Sunderland is troubled. When I met some last week near the UK’s largest automotive factory, they were grappling with the changes sweeping through their industry: “I don’t have a five-year plan any more. What’s the point?” one asked ruefully.

UK car production has fallen by 10 per cent so far this year as carmakers, including Nissan, gear up to shift decisively from making petrol and diesel engine cars to electric vehicles. But consumers remain hesitant: many still suffer from range anxiety and have been put off by high EV prices.

That is a problem not only for carmakers but for the government. The latter has pledged to advance the last year for sales of pure internal combustion engine cars to 2030, beating the EU’s deadline of 2035. It said in its manifesto that it wants to offer the industry certainty and become a “clean energy superpower”.

But ministers are taking quite a gamble with the UK’s manufacturing base, and with 813,000 jobs in the automotive-related industry, by pushing so hard. Suppliers are not the only ones worried about the future. “We will be global leaders in deindustrialisation, that’s for sure,” says Robert Forrester, chief executive of Vertu, the UK vehicle dealer group.

It is clearly necessary to facilitate the EV transition, given that transport is responsible for a quarter of the UK’s carbon emissions. Carmakers are already investing billions in new EV models and retooling factories to achieve it. But it is reckless to attempt to outpace the EU when the industry remains entwined with the European market, despite the rupture of Brexit. 

More than half the cars produced in the UK are exported to EU countries, and manufacturers such as Stellantis, which owns Vauxhall as well as Peugeot and Citroën, see European and UK production in the round. Carlos Tavares, Stellantis chief executive, has urged the EU not to delay its EV transition, but described the UK’s rules as “terrible” and warned of bankruptcies.

Carmakers met cabinet ministers on Wednesday to express alarm and seek greater flexibility in its legal targets for the elimination of petrol and diesel cars. They have called for tax incentives to help them obey the mandate. EVs will comprise about 18 per cent of this year’s new car sales, but that falls short of the 22 per cent target for 2024 set by Rishi Sunak’s government.

Sunak moved the UK’s zero emissions date back to 2035 to match the EU, and Labour’s 2030 pledge restores it again. The UK’s policy of steadily raising its annual targets for EV sales has not changed, with carmakers having to pay £15,000 for every additional petrol or diesel car they sell. They can trade EV credits to avoid some costs but the ratchet is now hurting.

Ministers this week resisted calls to ease the trajectory for introduction of EVs by delaying fines until the end of 2025. More UK-made models will be launched by then, giving carmakers a better chance of competing with imports of Chinese EVs. Despite the potential for an industrial and political crisis if drivers carry on delaying EV purchases, they are sticking to their strategy.

In practice, EU fleet emissions rules may lead to a similar result in the short term. Barclays estimates that 28 per cent of the vehicles sold by European carmakers next year must be EVs for them to avoid billions in fines, the same as the ratio set by the UK for 2025. Some companies are also lobbying for the EU’s emissions regulations to be relaxed.

Governments must strike a balance. If the rules do not hurt to some degree, they will not work: carmakers need an incentive to bear the costs of EV transition as soon as practicable. The incoming Trump administration is promising to eliminate EV subsidies and there is danger of a piecemeal global retreat.

But the UK, where 905,000 cars were built last year, is courting hubris by trying to lead the EU, which was responsible for 12mn. It is already a diminished force since the Brexit vote in 2016, when UK plants produced nearly double the 2023 number. It makes more sense to align the policy, both for maximum environmental impact and the country’s economic future.

This might be done without losing too much face. The fines ratchet could be adjusted more subtly and the government could permit the sale of more hybrids until 2035, rather than the “small number” it now talks about. It is better for the UK car industry to reach its EV destination intact than to crash while speeding.

john.gapper@ft.com