A healthy motor industry for the UK needs gigafactories like the one Tata will build
The Tata gigafactory could be an opportunity to reflect on what the government should and shouldn’t do to support the vital, but hard-pressed, British motor industry, writes Geoffrey Owen
Tata, the Indian conglomerate, is expected to announce a new gigafactory in Somerset to supply batteries to Jaguar Land Rover, the company which it has owned since 2008. The government is thought to have provided substantial financial support, including a special deal on energy costs.
If this deal is confirmed it will be good news for the hard-pressed British motor industry. Within 3 to 5 years the UK will have two gigafactories; the other is being built in Sunderland by the Chinese company, Envision, to supply Nissan. Two gigafactories are better than one, but Tata’s decision will still leave the UK a long way behind the EU, which has at least 25 gigafactories in operation, under construction or planned. The industry wants more gigafactories and thinks the government is not doing enough to promote them.
When Theresa May launched the Faraday Battery Challenge in 2017, the hope was that the creation of a battery supply chain – including gigafactories, cells, and the other battery components – would encourage the UK-based assemblers (all of which are foreign-owned) to make their electric cars in the UK rather than elsewhere. The government also hoped that one of the top Asian battery producers, such as Samsung, might be induced to build a gigafactory in the UK.
That latter hope was disappointed. The Asians preferred to invest in the EU, for the obvious reason that the EU, and especially Germany, had a much bigger motor industry than the UK. That was also where the big buyers of batteries – Volkswagen, BMW and the rest – had their headquarters.
Given the absence of Asian investment, the government was keen to support a homegrown battery startup, Britishvolt, with plans to build a gigafactory at Blyth in Northumberland. But this company, despite winning a provisional grant from the government, was never able to raise the necessary funds, and went into administration at the start of 2023.
The UK will need at least five gigafactories by 2030 to supply the number of electric cars that will be produced in the UK in that year, according to forecasts by the Faraday Institution. But who will build them, and how will they be financed?
Of the four big, UK-based assemblers, Nissan and Jaguar Land Rover have now made their dispositions, assuming the Tata project goes ahead. The other two, BMW and Toyota, have not. Will their volume grow to the point where they can support a UK-based gigafactory? An alternative would be to import cells from a European cell supplier and convert them into battery packs in their UK factories. But the industry has consistently argued that importing cells would add significantly to production costs, compared to supplies from a local gigafactory.
Will the government be prepared to support new gigafactories on the same scale as it has done with Tata? Whatever it decides, it must avoid engaging in a subsidy war with the US and the EU. It should focus on other ways – for example, lower energy costs – of making the UK more attractive for battery-related investment.
The government has recently restated its determination to make the UK one of the best locations in the world for the manufacture of electric vehicles. But how will that ambition be fulfilled? Does it imply more generous subsidies, or something different?
My report, the first in a new Policy Exchange series examining how the UK’s industrial policy must adapt to a world where global economic shocks are more common and the rules-based international order increasingly under threat, warns the government against engaging in a subsidy war. It argues that it should focus on other ways – for example, lower energy costs – of making the UK more attractive for battery-related investment.
At a time when the government is being widely criticised for not having a clear industrial policy, the Tata decision presents an opportunity to review what successive governments have done to support the auto industry’s transition to electric cars and to make a realistic analysis of the industry’s competitive position.
Whether or not the Sunak government believes in an interventionist industrial strategy, the motor industry is too important, and too exposed to several challenges, to be left in a state of uncertainty about government policy.