Fingers crossed in London
The Sunak government has reportedly offered Tata Motors, the owner of Jaguar Land Rover (JLR), sweeteners worth hundreds of millions of pounds to build an EV-battery gigafactory in the UK, rather than in Spain. Such batteries will power a new generation of JLR’s electric cars.
The proposed gigafactory would be built at Puriton, near Bridgwater in Somerset and might be conditional on a separate deal to subsidise energy costs at Tata Steel’s operation in Port Talbot. Tata Steel is expected to be granted £300m to decarbonise its Port Talbot plant – just as British Steel is expected to be granted a similar amount for its Scunthorpe foundry.
Tata is reportedly seeking up to £500m from the UK government, which will likely come out of the £1bn Automotive Transformation Fund. There would also be costs associated with the construction of a slip road to the site from the M5 motorway. As I have discussed here before, EV batteries are heavy – weighing 500 kilograms or more – and it is therefore uneconomical to manufacture electric cars unless there is a battery factory within a reasonable distance. Such batteries must be produced in large numbers to secure sufficient economies of scale. In short: no EV-battery gigafactory, no electric car-production industry.
The problem is that, as with the manufacturing industry as a whole, the UK is disadvantaged by having higher electricity prices than its neighbours and competitors. France has a largely nuclear-powered electricity grid and Germany still makes extensive use of coal to generate its power. The UK, in contrast, can only generate less than one quarter of its total electricity demand from nuclear power − and this amount is falling; and we have essentially cut coal out of the grid for environmental reasons. As I write, the figure for coal-powered generation in the UK is zero – although if the wind drops and as the sun doesn’t shine at night, coal plants are occasionally cranked back up to provide backup generation capacity.
Whether Tata opts for the UK or Spain will depend on its assessment of the long-term costs of energy in each country, as well as the ease of doing business. Spain has sought to lure Tata with the promise of billions of euros in EU grants under Brussels’s Covid recovery fund.
As of yesterday (Thursday, 25 May) it looked like Tata was moving in the direction of Somerset rather than Spain, with a formal announcement expected next week when Tata’s chairman, Natarajan Chandrasekaran, is scheduled to meet the prime minister. AMTE Power, a British start-up, has also been talking about the construction of a battery gigafactory in Dundee, though how close this is to realisation is unclear.
On Tuesday evening (24 May), Elon Musk, speaking at the Wall Street Journal’s CEO conference in London via video link, told the audience: “I will strongly consider England for a future location of a gigafactory…We are not currently looking at new locations, but we will probably towards the end of this year.”
The fact is however, that Tesla chose to build its €4bn European EV production plant at a greenfield site in the German state of Brandenburg, just outside Berlin. Since starting the project, Musk has complained about the degree of bureaucracy in Germany. He also indicated that he would look at various locations in France for a battery gigafactory at a recent meeting with Emmanuel Macron, suggesting that he might be trying to please his audience. It is true that Musk visited the UK for two days in 2021 on his way to Germany and may have visited some potential plant sites. Tees Valley mayor Ben Houchen and West Midlands mayor Andy Street both offered to escort him around potential sites, but as far as I am aware he did not take up the offer.
In the US, Tesla operates Gigafactory 1 in Reno, Nevada, which opened in 2014, and Gigafactory 2 in Buffalo, New York. The latter is run in partnership with Panasonic Solar and also manufactures photovoltaic cells for solar panels. Gigafactory 3 in Shanghai, China, which manufactures both electric cars and batteries, opened in 2018. To date, Tesla has only made EV batteries for its own vehicles and the company has no plans to establish a car-production plant in the UK.
Nissan, which manufactures its Leaf electric car in Sunderland, produces small batteries for this model on site. China’s Envision Group (private) is constructing an adjoining plant. JLR assembles battery packs at its Hams Hall site. All other car manufacturers in the UK import their batteries, such as BMW, which builds its electric Mini in Oxford.
The gigafactory proposed by Britishvolt in Blyth is now much in doubt after the company’s collapse in January. Recharge Industries, an Australian start-up which bought Britishvolt out of administration, insists it is still committed to the £1bn project but is pivoting its focus away from family cars.
Under the Free Trade & Cooperation Agreement between the UK and the EU, to avoid trade tariffs on exports to Europe − where about 20 percent of all British-made cars are exported − batteries in electric cars built here are currently allowed to contain 70 percent of materials made outside the EU or UK. These are the so-called “rules of origin.”
But that threshold falls to 50 percent next year. Any battery or vehicle deemed to fall below that threshold would attract a tariff of 10 percent. That is why the chief executive of Stellantis – the owner of the Peugeot, Citroen and Vauxhall brands – warned on Wednesday last week (17 May) that the UK must renegotiate its deal with the EU or else its car factories in the UK will have to close.
This is a classic ‘chicken-and-egg’ problem. No corporation is going to invest in a battery gigafactory in the UK unless there is a good prospect that electric car production will ramp up here over time. And no automotive producer is going to invest in new capacity unless there is the likelihood of local battery supplies.
That might not necessarily be catastrophic if the conventional internal-combustion engine had a future. But the Tory government has decided in its wisdom that no new petrol or diesel-powered cars will be sold in the UK as of 2030 – five years ahead of the EU, where the cut-off date has been set at 2035. And, in any case, German manufacturers will probably win the right to continue to build internal-combustion engines which run on biofuels. Jim Saker, president of the Institute of the Motor Industry describes the UK’s 2030 deadline as a “death sentence” for our motor industry.
We now face the serious risk that the entire UK automotive industry – which directly and indirectly accounts for nearly one million jobs – might be wiped out altogether by 2030. That would be a devastating blow for the economy, from which it might not be able to recover. It doesn’t help that, under successive chaotic Tory governments, the UK has had seven secretaries of state for business in the past five years alone.
Toasts in Berlin
The week before last, Sweden’s Northvolt (private), a leading European battery manufacturer, confirmed that it would proceed with plans to build a gigafactory in Heide, Schleswig-Holstein, in northern Germany after the federal government committed to pump hundreds of millions of euros into the project.
German Vice Chancellor and Economy Minister Robert Habeck said that Germany could now “look forward to one of the most significant flagship projects of the energy and transport revolution, which will create thousands of green tech jobs.” Significantly, German automotive giant Volkswagen owns approximately 20 percent of Northolt’s stock and commands a seat on the board.
Berlin will partially finance the gigafactory under the temporary crisis and transition framework (TCTF). This fund allows EU states to subsidise investment in battery manufacture and renewable-energy and carbon-capture projects up to 2025. It was set up in response to the disruption of the energy markets following Russia’s invasion of Ukraine. This facility has gone some way to counter the allure of subsidies available in the US under President Biden’s Inflation Reduction Act.
Any state aid for Northvolt must be signed off by Brussels. The new factory will have an annual production capacity of 60 gigawatt hours of batteries – which translates to about one million car batteries. It will employ 3,000 people on site and many thousands more indirectly. Northvolt already has one gigafactory in Sweden and another is under construction there, so it has a track record.
Champagne Corks Popping In Paris
Taiwanese EV-battery manufacturer ProLogium has chosen Dunkirk, France, for its €5.2bn European plant. Last week, chief executive Vincent Yang said that the EU’s commitment to proscribe the sale of petrol and diesel-powered cars by 2035 had created a stable backdrop for global battery makers.
Verkor, a French company which is backed by amongst others Renault, announced plans in February to build a €1.6bn battery factory in France’s northern rust belt. This region – Picardy − has never really recovered from the closure of the last coal mines in 1990, which in the mid-20th century employed 200,000 people. Incomes there are below the national average and unemployment is higher.
About an hour south of Dunkirk, in Billy-Berclau (near Béthune), Franco-German ACC has already begun construction of a similar battery gigafactory which will have a capacity of 2.5 million units a year. About 18 kilometres due southeast in Douai, another battery gigafactory is under construction by China’s Envision. ACC is backed by Mercedes Benz, Stellantis and Total; Envision and Verkor have supply deals with Renault.
On 15 May, Musk turned up in Paris for a private tete-a-tete with Macron at the Elysée Palace. He then met with France’s finance minister, Bruno Le Maire, before having dinner with 200 other business executives at the ‘Choose France’ summit at the Palace of Versailles. Musk’s visit to France concluded with a hint at “significant investments in France” to come. For his part, Macron tweeted (in English) that he and Musk had “so much to do together.”
If there are to be as many as five EV-battery gigafactories in northeastern France, that would serve as the likely trans-European production hub. Dunkirk, let us recall, is but a 90-minute boat ride from Dover.
China: Drinking Deep
There are around 40 EV gigafactories already operational in China. And there is likely to be a flow of economical Chinese EV models available across Europe very soon which, even if they are subject to tariffs, will still be regarded as good value, entry-level vehicles.
Zeekr (owned by Geely) has announced plans to launch its X sports utility vehicle in China before bringing it to Europe, joining numerous other Chinese brands with the same strategy. The Zeekr X will cost 189,000 yuan (about £22,000) and will have upgrade options such as an in-car fridge and facial-recognition technology to unlock the vehicle. The cost of the basic vehicle will be cheaper than Tesla’s Model 3, which starts from around £40,000 in the UK. The Tesla Model Y, which is the most popular EV in the UK, starts at £44,000. BYD is already selling its Atto 3 for around £36,500. Other Chinese brands which are negotiating with UK car dealers now include Ora, Chery, Dongfeng Motor and Haval.
The Chinese threat has already prompted Tesla and Ford to cut the prices of their EVs. Clearly, one of the reasons why the UK is such an attractive market for Chinese EV producers is that the guillotine is falling on conventional-new-car sales in the UK well before onshore manufacturers have a full product range in place. And yet the Tory government talks about “derisking” the Chinese challenge.
Lord, Make Me Carbon Zero – But Not Yet!
During his foray to Calais last week, Macron imparted a message to French and European policymakers. European industry was at risk unless there could be a “European regulatory pause” on the reams of new green regulations coming out of Brussels. Europe, he said, had already done more to combat rising CO2 emissions than either China or the US. There was no point in Europe competing against them while wearing ‘lead boots.’
Such fears are not confined to France. The Germans have been exercised of late by the take-over of heat-pump and air-conditioning manufacturer Viessmann by its US rival Carrier Group. In the Netherlands, a farmers’ revolt against the net-zero agenda has transformed the political landscape. The Farmer-Citizen Movement (BoerBurgerBeweging or BBB) has risen from nothing to take the largest share of the vote in the Dutch regional elections in March.
The EU has already reacted to the changing competitive landscape by relaxing state-aid rules, simplifying regulations and prospectively allowing vehicles which run on e-fuels after 2035. And it now seems that Brussels is holding back on new regulations concerning soil health, GM crops and seeds.
Both the UK and France have set a “legally binding” target of achieving net-zero carbon emissions by 2050. Germany and Sweden even have a target of 2045. And yet Germany is reopening lignite mines while the UK is refusing to countenance fracking. Also, while the green vote is falling in Germany, it went up in England’s local elections of 4 May.
British politicians continue to witter on about “green jobs” (and we shall hear much more of that from the Labour Party in the years to come) even as such green jobs are relocated to the US, where families are to be paid $14,000 for installing a heat pump and $7,500 for buying an electric car – so long as they are manufactured in the US. The US, let it be noted, does not have a target for achieving net-zero carbon. In fact, only 23 countries in the world have a legally binding net-zero commitment.
Just as Saint Augustine prayed for delayed chastity, so the British and European elites may come to regret their untimely virtue.
Environmental Doubts About Electrification Amplify
I stated my case as to why electrification of vehicular transport may not be the best thing since sliced bread – and indeed why it is unlikely to happen in totality – last month. New doubts about the sagacity of going EV-only are now increasing.
This week we learnt that EVs, because they are so heavy, actually generate more particulates from tyre wear than conventional cars – and do much more damage to roads, meaning that they will have to be resurfaced more often. By the way, most tyres use synthetic rubber which is manufactured from oil. Should we tell the Just Stop Oil people? Oh yes – and heat pumps apparently now contravene noise-pollution regulations…
According to Auto Trader, UK motorists are unsure whether to replace their cars these days because they don’t want to go electric and fear that a new petrol car might be penalised in the near future. As a result, they are postponing new purchases. About 5.3 million cars on UK roads are 15 or more years old. An unprecedented 15.4 million cars will be over 10 years old by 2028. Sensible UK motorists understand that there is no real second-hand market for EVs; but they can always offload their old bangers for cash.
Politicians do not have good form on the environment because their initiatives often have unforeseen consequences. In the Blair years, the UK and the EU incentivised diesel cars because, mile for mile, they were more fuel-efficient. But then it transpired that diesel generates nitrogen dioxide, which is a major cause of lung disease.
Will they never learn?
I usually wake to the BBC World Service. In the 30 minutes or so before BBC Radio 4 takes the reins, I hear interesting voices from across the world. Then comes the inanity of the 10-minute Shipping Forecast – which is surely a long-running spoof. Are there actually sailors in North Utsire or Dogger busily taking notes? I doubt it.
This is followed by a compressed news briefing which makes much of The Today Programme unnecessary. Prayer For The Day can be uplifting, although the Rev Ann Easter should calm down at that time in the morning. Farming Today is always informative − and mercifully short.
At 6am we get The Today Programme. If it is Martha Carney (high emotional intelligence, cheerful) with Michal Hussein (probing, analytical), then I continue listening while reading the morning emails. But if it is Amol Rajan (‘media-is-the-message’, often glib) and Nick Robinson (opinionated, self-referring, often brusque) then I switch to Radio 3. If it is Justin Webb (charming but verbose) and one of the aforementioned women, I continue listening until the need for music prevails.
I try to step away from the screen for Thought For The Day at 7.47am. Canon Angela Tilby (whom I have met at her old stomping ground, Christ Church) is always worth hearing, although I am less keen on the Rev Lucy Winkett. There are also innumerable contributors who claim to speak for various strands of religious faith. I try to listen with respect – assuming I am listening at all, that is.
And then I go to work with Radio 3 or Amazon Music.
Listed companies cited in this article which merit analysis:
- Tata Motors (NSE:TATAMOTORS)
- Tesla (NASDAQ:TSLA)
- Volkswagen AG (ETR:VOW3)
- Renault (EPA:RNO)
- Geely (GELYF:OTCMKTS)
- BYD Company ADR (LON: 0HKY)