In these turbulent times the welcome news that Jaguar Land Rover plans to invest £1bn to make electric cars in the Midlands was soon offset by PSA warning about transferring its production back to the European Union if a no deal Brexit affects the profitability of its Vauxhall works at Ellesmere Port.
One of the last acts of the May government was to hand JLR a £500m loan guarantee to help seal the electric car investment. It will be important for the new administration to demonstrate its support for UK carmakers in the global race to be at the forefront of electric car manufacturing.
There is no doubt the coming electric car revolution presents huge opportunities for the UK, and is integral to ambitions to make us carbon “net zero” by 2050. Today there are just 200,000 electric cars on our roads, but over the next decade this number is set to soar as the costs of electric cars come into line with their internal-combustion counterparts. The UK is well-placed to become a global leader in electric car manufacturing: we have world class car makers, a highly skilled workforce, unparalleled universities and research and development facilities, and the potential to build a new end-to-end supply chain for electric cars.
Ease of access to the supply chain is always a key consideration when manufacturers decide where to invest and produce their next models. Up until now, the debate around the supply chain has centred on the building of ‘gigafactories’ to produce the high volume of batteries required to support electric car production in Britain. The focus is understandable due to the added-value element, costs are coming down but today batteries can be 40% of the cost of an electric car.
Of course, there are many benefits to companies of sourcing from the UK, including strategic OEM-supplier relationships and product differentiation, short lead times and reliable delivery, and negating the risks of importing from abroad. Moreover, post-Brexit our carmakers are likely to need more than 50% local content to comply with rules of origin on exports, so maximising the potential in our supply chains is a necessity.
Batteries are crucial but the electric motors that go into the powertrain are equally important to the supply chain for electric cars, and here we have a real opportunity to develop a new domestic supply chain. Electric motors are built from high-quality non-oriented electrical steels, a product that with investment can be produced by the 350 highly skilled workers at the Orb works, part of Tata Steel’s Cogent Power business, in Newport.
As well as the benefits to carmakers of sourcing locally, and of course supporting highly-skilled UK jobs, developing a supply chain for electric motors will be hugely important for our balance of trade. The UK currently has 10,000 workers making internal-combustion engines, and failure to develop the supply chain will result in a loss in the export value of those engines replaced by the import costs of electric motors, which equates to £1.2bn for every 1m electric cars.
It should be clear that as the only UK plant capable of making the steels for electric motors, the Orb must be considered as a strategically important business underpinning this vital industry of the future. If manufacturers deliver on their plans for electric cars and give priority to local supply, then by 2030 UK demand for automotive non-oriented steels could reach ninety thousand tonnes a year.
To get about electric cars need electricity and charging points to plug into, and here too the Orb can produce the necessary specifications of grain-oriented steels. Today the UK has around 20,000 charging points, but over the next decade this number is likely to increase tenfold. Given the roll-out of the charging infrastructure will be facilitated by the taxpayer, government must ensure that locally produced steel, and other UK content, are used in their production.
Since the 1980s we have seen the gradual erosion and hollowing out of our supply chains, resulting in jobs and value going overseas. Here we have a new industry, and the opportunity to do things differently. Whether the new government will support development of the UK supply chain for electric cars is a real test of their commitment to industry post-Brexit.