Battery deficit risks UK driving electric jalopy - Reuters

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British Prime Minister Boris Johnson sits in an electric taxi in Coventry, Britain, November 13, 2019. Ben Stansall/Pool via REUTERS

LONDON, June 22 (Reuters Breakingviews) - A looming battery deficit risks running Britain’s motor industry on a low charge. Faced with a ban on combustion engine sales and looming import caps, the government needs a steep ramp-up in local production to persuade carmakers like BMW (BMWG.DE) to stay in lane.

Carmakers Ford Motor (F.N) and Nissan Motor (7201.T) and conglomerates LG (003550.KS) and Samsung (005930.KS) are in talks with Whitehall about building so-called gigafactories to produce electric vehicle batteries, according to the Financial Times. Ensuring there’s enough domestic battery-making capability for the likes of Jaguar Land Rover and Toyota Motor (7203.T) is crucial: car manufacturing accounts for some 13% of Britain’s goods exports.

At present, the UK can handle just 2 gigawatt-hours a year, compared to about 49 GWh in the rest of Europe, according to Benchmark Mineral Intelligence. UBS reckons electric vehicles will account for close to two-fifths of European sales by 2025. That proportion could double by 2030 – the date Prime Minister Boris Johnson has earmarked to ban sales of new gas guzzlers.

Applying UBS’s projections to the nearly two-thirds of UK-made cars sold in Europe and assuming 18% of the remainder are zero-carbon rides – in line with estimated global demand – implies British carmakers would have to produce 381,000 electric vehicles in 2025, based on the roughly 1.3 million total vehicles manufactured in 2019. That would require around 23 GWh, using figures from the Society of Motor Manufacturers and Traders. Companies like Britishvolt plan to build at most 70% of that, which might allow for 250,000 battery motors, or just a fifth of pre-pandemic output. Even that is unlikely to be available in time as battery plants generally take between five and seven years to reach full capacity.

Trade rules present another bump in the road. Roughly half of British-made cars are shipped to the European Union. The Brexit agreement states that at least 55% of electric vehicle parts by value must be sourced from the UK and EU from 2027. Yet the required batteries, which currently come mostly from Asia, account for two-fifths of a car’s financial worth, reckons the Faraday Institution. It wouldn’t take much for additional foreign-made components to bust the cap, allowing Brussels to impose a tariff under World Trade Organization rules.

Johnson’s ambitious target to limit combustion engines should be applauded. But a lack of power means the country may end up driving an electric jalopy.

Follow @CGAThompson on Twitter

CONTEXT NEWS

- Britain is in talks with six companies to build large factories to produce electric vehicle batteries, the Financial Times reported on June 16 citing unnamed people briefed on the discussions.

- Ford Motor, Nissan Motor, LG Corp, Samsung and startups Britishvolt and InoBat Auto are in talks with the British government or local authorities about locations for potential factories and financial support, according to the report.

- The British government’s plan to prohibit the sale of new petrol and diesel cars by 2030 and hybrids by 2035 will require the country’s vehicle plants to shift to producing electric models.

- A UK business department spokesperson said that “to support the auto sector’s transition to electric vehicles” the government is “dedicated to securing gigafactories, and continue to work closely with investors and vehicle manufacturers to progress plans to mass produce batteries in the UK”.

- So far, there are 38 planned major battery factories across Europe, according to green lobby group Transport & Environment, with only Britishvolt’s project being disclosed in the UK, according to the newspaper.

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Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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