From the impact of Brexit to the rise of electric cars, a special roundtable considers the future of car manufacturing—and ownership—in Britainby Prospect Team / May 14, 2019 / Leave a comment
As a child, Mark Pawsey would play a game to while away time sitting in the back of the family car. He’d spot other cars, identifying their origin. Many were built in Coventry or Birmingham. Few were from outside the UK. Today, the scene from the car window is much changed—as the MP for Rugby would acknowledge—and it tells the story of an industry transformed.
From a record high production of 1.9m units in 1972, output hovered around the one million mark at the end of the last decade. By 2017 the figure was up to 1.6m, many cars and engines originating from Germany, Japan, South Korea and elsewhere; still UK-built in some cases but not UK owned. And alongside the internal combustion engine-based vehicles to be spotted from the back seat, there are hybrids from the likes of Nissan and Toyota, the odd electric vehicle from Tesla, car club and ride-hailing vehicles, and—in the not too distant future—autonomous cars, too.
“Today, there’s almost no such thing as a British car or a German car given there are so many common components,” Pawsey told a recent roundtable convened by Prospect in association with Tata Steel Europe. “I saw the decline of the industry in the 1980s and 90s, and I’ve been really pleased to see the sector come back up.”
Beyond the scene from the back-seat window, Britain’s automotive industry is navigating a set of complex challenges. Demand from China has fallen by over a fifth, while Brexit exposes the UK’s relationship with its biggest export market and large parts of its supply chain. Separately, diesel sales collapsed by over 30 per cent in 2018 alongside a push for greener, less polluting solutions.
Electric vehicles and their future
“We are going through an incredible transformation,” said Peter Stephens, Head of UK External & Government Affairs, Nissan Motor (GB). “We are trying to do inside 20 years what has taken us 100 years to get to this point.”
Stephens argued that while the move to electric vehicles (EVs) must be supported—not least because it democratises the fight against climate change by putting decision making in the hands of the individual—he cautioned against a move to EVs at all costs. “If we can’t make the competitive case, we risk not making vehicles here at all.”
“Electrification isn’t a UK phenomenon. The UK isn’t even at the front of the pack—it’s in middle of the pack. If you look globally, China is driving the EV industry globally. And for the automotive industry that means we’re facing a real challenge of investment.” Stephens identified two competing pressures: to invest in current automotive technology making sure it complies with stricter emissions limits, or to invest in electric. “If you’re in the boardroom of a global automation business where do you stick your yen, or your dollars or your pounds? Do you stick them in internal combustion engines in Europe? Do you stick them into battery factories in China?”
Advances in battery technology will be key to the wide-scale adoption of EVs. According to Stephen Gifford, Head of Economics at The Faraday Institution, the battery accounts for 40 per cent of EV costs today. Prices will come down however and by the mid-2020s, he predicted that EVs will cost less than a traditional car. “That’s the key point in time,” Gifford said. Gigafactories—large battery plants—will be required to meet demand, and in many cases, these will need to be adjacent to the car plant they are supplying.
The success of EVs also depends on infrastructure and standardisation. That means reinforcing the national grid to support mass recharging and it means reducing the array of EV connectors that will greet motorists at motorway service stations. Behavioural economics will play a part, too, in managing growing electricity demand, said Mark Pawsey. “EV growth will have to go hand in hand with a smart energy network.” He argued that variable pricing will encourage motorists to charge their cars after midnight to take advantage of cheaper rates, smoothing demand peaks in the process. “We’ll then see people use the car as a mechanism for storing electricity, putting that energy back into the grid or back into their home,” said Pawsey. “It involves a complete change in mindset.”
The future of car ownership
The electrification of vehicles coupled with the introduction of self-driving cars is likely to lead to other changes. It’s unlikely, for example, that we will build all-purpose vehicles as we do today. “We’ll need diversity,” said Tony Walker, Managing Director Toyota Motor Europe’s London Office and President of the Society for Motor Manufacturers and Traders. “I don’t think anyone believes we can make the cars that we do today—a car that’s easy to park and also drives around the Sahara.”
We may also see a move away from ownership. The growth in rental, ride-hailing and car-sharing services in London and other urban centres points to a shift. For many, concerned both about congestion and air quality, this may prove the more environmentally-friendly option; cheaper and more efficient, too.
Yet when it comes to car ownership, logic is not always the deciding factor. “When my son was considering buying a new car, we worked out that it would be cheaper to have an Uber account [over a five-year period],” noted Andrew Hodgson, Strategic Sales Lead – Digitalisation, Siemens Digital Factory. In the event, his son chose the car not the taxi account. “His heart ruled his head.”
Peter Stephens agreed, suggesting car ownership signals independence, a right of passage. “There’s a reason why we don’t commoditise cars. People associate them with who they are. I can’t see a day, personally, when there will be an end to private ownership,” he said.
There is another factor that might prolong the era of car ownership, suggested Stephen Gifford. “If we are moving to a world of battery-powered electric vehicles, the cost of cars—the total ownership costs—will come down,” he said. “You could actually see people travelling more by car in 2030-2040.” Good news for automotive makers. It’s equally possible that once the internal combustion engine is removed, the longevity of the other components means owners will be replacing their cars less often.
The importance of the supply chain
Speaking of components, the average car is made up of 30,000 parts. Some of these are built in country, others come from overseas and yet more are shipped cross border more than once before completion. All rely on sourcing raw material including glass and steel. This is the supply chain in action.
“It’s impossible to overstate the importance of the automotive industry on the steel industry,” said Labour MP Stephen Kinnock whose Aberavon constituency includes the Port Talbot steelworks. Port Talbot directly employs 4,000 people. “It is the beating heart of our economy and our community. This goes beyond what people do in their day jobs. This about what the town means to their community. There’s not a single family or street that’s not affected.”
Tata Steel Europe, the owners of the south Wales plant, is the largest steelmaker in the UK and it works with every UK-based automotive OEM (original equipment manufacturer). Like others in the automotive supply chain, it has a role to play in the decarbonisation of the industry. It has committed to be Co2 neutral by 2050. “We need to adopt a lifecycle approach across the whole supply chain,” noted Deirdre Fox, Director Strategic Business Development, Tata Steel Europe. “That means looking at Co2 on a cradle-to-grave basis including end of life management through the reuse and recycling of materials and waste.”
Electrification has an impact on the supply chain in other ways, too. Not only is there demand for parts and materials to build existing and emerging battery technologies, but there is also going to be an accelerated demand for EV motors. Fox expressed concern that the EV supply chain has yet to be built out in the UK. “We can deliver the materials but looking at the onward supply chain, there’s very little there,” she said.
Andrew Hodgson noted that the crankshaft used in the BMW Mini crosses the English Channel three times before completion. This journey not only shines a spotlight on Brexit (see below) but points to production inefficiencies that may need to be addressed in the future. “We either bring the crankshaft manufacture back here or the Mini may move to another country. However, if internal combustion engines are a thing of the past maybe we have a blank piece of paper to start from. Maybe the technology of crankshafts isn’t the technology of the future and we’re not carrying that baggage with us.”
Meanwhile, it might be assumed that there will be less demand for insulation solutions in a post-internal combustion engine era. Not so. Talking to a small parts supplier in his constituency, Mark Pawsey discovered that the traditional engine disguised a series of other noises that, without insulation, will be perfectly audible in an electric vehicle.
Brexit and beyond
Hanging over any discussion on the health of UK manufacturing is the potential impact of Brexit. Fifty-four per cent of UK cars are currently exported to the European Union. Alasdair Smith, an international trade economist working with the UK Trade Policy Observatory at the University of Sussex, described ongoing uncertainty as a substantial risk.
“For automotive manufacturers there are really big generational investment decisions ahead,” he said. “Who is going to invest in the UK automotive industry at the moment? Which multinational would even start building a new model range in the current climate? You don’t know what border costs you’re going to face. You don’t know what your labour supplier position is going to be. You don’t even know if you’re going to face tariffs for selling your goods into the rest of the EU.”
If decisions over the nature of our exit from the EU get postponed beyond the next general election—due in 2022—we might soon be talking about “an ex-motor industry,” Smith argued.
Stephen Kinnock acknowledged the detrimental effect of a failure to reach a Brexit agreement. In particular, he is concerned by a failure to recognise the ongoing importance of single market membership in any future deal. “The difference between manufacturing and services is, to a large extent, eliding in the modern economy. So, I still haven’t fully grasped how we can we hive off customs union from strong single market alignment.”
Kinnock argued that economic concern stretches beyond Brexit. What he described as the UK economy’s “deep-seated structural weaknesses” are a consequence of addiction to short-term finance rather than investment-led growth, the resulting trade deficit and an ongoing productivity gap. “The red thread going through all of that is the collapse of the manufacturing sector. In the 1970s almost 30 per cent of our GDP was manufacturing. It’s now below 10 per cent.”
The role of government
Kinnock insisted he was not making a party political point, rather he was reflecting on four decades of political failure. “Globalisation is not a force of nature you just have to accept. It’s about what political choices you make and the strategy you have.” To instigate “a manufacturing renaissance,” he said, requires a national investment bank focused on investing in both large- and small-scale manufacturing businesses; a fund to deal with huge technology displacement to ensure people have skills to give them marketplace mobility; patient, rather than short-term, capital investment; and an active target to raise manufacturing to 15 per cent of GDP by 2025. These measures would not only help rebalance the economy, Kinnock said, they “would deal with so many of those structural causes of the leave vote.”
Others urged government to get involved in different ways. Toyota’s Tony Walker said intervention to help new technology companies scale would be massively beneficial. The UK is good at innovation—much of it emerging from research centres clustered around our universities—but it is less good at supporting these ventures as they move from start-up to longer-term stability. “We are missing the famous Mittelstand,” Walker said, referring to Germany’s mid-sized organisations.
For Nissan’s Peter Stephens “certainty” is a key requirement. He praised the government for the its “Road to Zero” strategy paper published last July which set out its ambitions for ultra-low emissions and an interim target of 2030. However, he cautioned against inertia. “The risk is that can just gets kicked down the road.”
Finally, from Andrew Hodgson, a call to be radical. Thinking about what follows the internal combustion engine and hybrid motors, he said: “Perhaps we shouldn’t try and catch up with the Japanese and the Germans but instead look to the next technology and base our R&D around that. We should lead not follow.”
“The future of Britain’s automotive industry,” a Prospect roundtable in association with Tata Steel Europe, took place in Westminster on Tuesday 7th May 2019