The UK’s race to battery and EV production

The UK’s race to stay competitive in the global automotive industry, a significant source of both Gross Domest Product (GDP) and Foreign Direct Investment (FDI), will soon reach its critical point. According to the Department for International Trade, the industry contributed 15.3 billion GBP to UK GDP in 2020, down from its peak of 22 billion GBP in 2016, whilst accounting for 4.3% of FDI into the UK in the financial year 2019-2020, down from 5.2% in the years 2017-2018 and 2018-2019. Partly to blame for such changes is the combined effects of Brexit and COVID-19, not only for the exogenous global supply shocks but for reduced business confidence and in turn investment. Yet these events have diverted attention away from the underlying problem of the UK automotive industry; the slow transition to battery production and electric vehicles (EVs).

With global focus turning increasingly towards reducing emissions the market for electric cars is only growing with investment bank Morgan Stanley’s auto research team expecting 40% of all new car sales to be electric by 2030, 51% by 2040 and 69% by 2050. The head of this team, Adam Jonas, emphasises the significant changes the industry may face saying, “We believe that the technology disruption risk to the global automotive sector is real and significant”. Unlike petrol and diesel engines, batteries are heavy and costly to transport so factories need to be situated near car manufacturing plants to remain economically feasible and competitive. Countries like China, Japan and South Korea as well as companies like Tesla have already realised the urgency in adapting to the market, a venture the UK must undertake in order to keep up in the global race to secure battery production.

The UK’s leading EV battery investor Britishvolt Ltd’s plans to build a new lithium-ion gigafactory, a gigantic battery producing factory, in Blythe appears to be a step in the right direction. The recent 100 million GBP grant from the UK government’s Automotive Transformation Fund follows on from a combined 1.7 billion GBP investment from real estate fund manager Tritax Group and investment company arbdn Plc into the new plant. The new gigafactory will produce enough batteries for 300,000 EVs per year and supply numerous car manufacturers including prestigious sports car manufacturer and previous F1 team Lotus.

Strong long-term deals with the largest mining company in the world, Glencore Plc, will also be important in securing supply chains and resources. On top of a new lithium-ion battery recycling plant in the UK Swiss-based Glencore Plc have agreed to supply at minimum 30% of Britishvolt Ltd’s cobalt requirements after taking an unknown stake in the British company last year. Battery production is relatively resource-intensive, especially for rare earth minerals, with an EV requiring 83kg of copper compared to only 23kg for vehicles with internal combustion engines according to the International Copper Association. Establishing secure supply chains for ‘critical’ rare earth minerals will be paramount in ensuring the UK’s automotive industry long term competitiveness once gigafactories have been built.

Deng Xiaoping, former leader of the People’s Republic of China, stated in 1992 that “the middle east has oil, China has rare earths”. Although rare earth minerals are plentiful in several countries around the world, the reliance on China to process them has resulted in a vice-like grip on supply chains, with the country supplying over 85% of rare earths. Not only is this a political and security issue for many of the world’s economies, and in particular developed economies dependent on such resources, but it has also contributed to major price increases.

Lithium for example, which can account for 10kg of an EV’s weight, has already continued its price uptrend experiencing price surges of over 25% this year alone, with lithium carbonate reaching highs of 380000 points having started the year at 277500. These price uptrends and China’s stranglehold over the rare earths market look set to continue as limited investment into the sector leaves supply sides struggling. Europe’s plans to be independent in battery production by 2026 have taken a further hit following the revocation of mining giant Rio Tinto Group’s exploration licences in Serbia due to public protest. The proposed 2 billion USD project is estimated to have been able to produce enough lithium for 1 million EV batteries.

The UK government’s plan to end the sale of all new petrol and diesel cars by 2030 as it pursues its net-zero emissions targets is only an added incentive to support and invest in battery and EV production in the UK’s bid to keep its automotive industry competitive on the global stage. The new gigafactory by Britishvolt Ltd is a step in the right direction but still leaves the UK far behind the rest of the world. There are at least 15 gigafactories under construction in the EU, supported by the European Battery Alliance, with China currently boasting 148 of the world’s 200 gigafactories, a number expected to rise upwards of 200 by 2030. The global race for rare earth supply chains and battery production is heating up and the UK must join the race to avoid being too late.

By: Jeremy Toussaint

Lead by: Eric Hardy