UK car industry sounds ominous warning on energy costs in drive to reach net zero

Urgent action needed as auto sector faces £90 million spending increase, says motor body

Workers on the production line at Nissan's factory in Sunderland. The UK car industry has sounded a warning over rising energy costs. PA
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The UK car manufacturing industry is at a competitive disadvantage to the rest of Europe due to sharply rising energy costs, the sector warned on Tuesday.

Analysis by the Society of Motor Manufacturers and Traders (SMMT) found that the sector’s annual energy bill – which is already £50 million ($61.3m) more than its European Union rivals – will rise by £90m in 2022, a 50 per cent increase. It said the uplift in bills was equivalent to more than 2,500 automotive jobs.

It comes as the British car industry suffered its second weakest May in three decades as sales dropped by more than a fifth year-on-year. Inflation in the UK hit an annual rate of 9.1 per cent in May, a new 40-year high, after broad increases in the cost of fuel and electricity.

UK electricity prices are the most expensive of any European car manufacturing country and 59 per cent above the EU average, the SMMT said.

That means British companies could have saved nearly £50m if they were buying energy in the EU.

The additional cost of producing vehicles and components in the UK is putting manufacturers at a competitive disadvantage, the SMMT said.

It called for urgent action as the UK’s £21.2bn auto supply chain tries to meet accelerated timelines for zero emission transformation.

Speaking at the organisation’s annual summit in central London, SMMT chief executive Mike Hawes said challenges such as the coronavirus pandemic, a shortage of parts and trade uncertainty were “immense”, but addressing the UK’s high energy costs was “the industry’s number one" task.

"Help with energy costs now will help keep us competitive and be a windfall for the sector, stimulating investment in innovation, R&D [research and development], training — all reinvested in the UK economy.

“With the right backing this sector can drive the transition to net zero, supporting jobs and growth across the UK and exports across the globe.”

The SMMT set out its vision for the industry to move to net zero — 'From full throttle to full charge' — as it phases out the sale of new petrol and diesel cars and vans by 2030.

It said the 123,500 jobs supported in every region of the country are at stake in the transition.

How electric car industry can keep up with demand

How electric car industry can keep up with demand

Setting out its road map, it said: "For many long-established component segments, such as engine and exhaust producers and their sub-suppliers, the transition to electrification presents major challenges. While some companies are already on the journey, many risk being left behind as the jobs and skills involved with internal combustion engine [ICE] technology may not be transferable. At least 22,000 jobs, £11 billion of turnover and £2bn GVA in the UK is currently reliant on ICE-based technologies.

"There are, however, significant opportunities for those able and enabled to transition, for example, in batteries, motors and power electronics. SMMT’s roadmap sets out the wide range of measures, covering industrial and market transformation, which must be implemented if the opportunities are to be grasped."

Mr Hawes said inflation, energy shortages, rising fuel prices and the cost-of-living crisis give the impression the UK faces “the return of the 1970s”.

He acknowledged the automotive industry is being “hit hard just like it was hit then”, but he insisted there is a “big difference”.

He said: “Go back to the ’70s, typified by poor management, poor labour relations, hence poor quality. That’s not the situation now.

“We have a global reputation for engineering excellence, innovation, admired and desirable brands from across the country.

“We have a strong foundation. We’re still a powerhouse of international trade, with great wealth, contributing billions to the economy and supporting thousands of livelihoods in every corner of the country.”

But circumstances in recent years “have not been easy”, with Brexit a “trauma” that is “not yet done”, he added.

Five demands of the car industry

· Support businesses facing high energy costs as they transition to net zero, including the provision of short-term support; making UK automotive equivalent to Energy Intensive Industry status; maintaining automotive Climate Change Agreements; and delivering low cost, zero carbon electricity and a national supply of hydrogen.

· Deliver a globally competitive business environment for the sector, by expanding the scale and scope of the Automotive Transformation Fund to boost supply chain transformation and adaptation.

· Create a globally competitive investment environment, extending the super deduction or introducing a generous successor, and enhancing R&D tax credits.

· Ensure full implementation of the EU-UK Trade and Co-operation Agreement and prioritise UK automotive in trade policy and future free trade agreements.

· Focus on current and future skills needs via reform to the Apprenticeship Levy and a dedicated long term automotive skills strategy.

Updated: June 28, 2022, 8:55 AM