Cars remain the UK’s No 1 export but volatile energy prices and the cost of complying with EU regulations post-Brexit are blunting the industry’s competitive advantage, the sector’s trade body has said.
Nine in 10 firms in the industry told the Society of Motor Manufacturers and Traders (SMMT) that costs, measured in time and resources, had increased as a result of leaving the EU, with 60% saying the extra expense for trading with the bloc was a “much more significant rise than other export destinations”.
Mike Hawes, the SMMT chief executive, said: “The cost of complying with new regulations has made the UK potentially less competitive compared with some of our European counterparts.
“The first few weeks months were incredibly difficult. There were delays at borders, some of those were teething problems, some of those issues were more substantive. Undoubtedly the industry is facing additional cost and complexity; costs which generally have to be absorbed, to maintain competitiveness.”
The SMMT said that regardless of such issues, the EU would “remain a central trade partner”, with about half of all cars made in Britain exported to EU member states, while almost all vans exported by the UK end up on European roads.
Overall vehicle export revenues to all markets reached £27bn in 2020, even as the Covid pandemic disrupted trade flows and shut down markets around the world.
The UK automotive sector as a whole generated a total trade revenue of £74bn, with more than 80% of British-built cars and more than 60% of light commercial vehicles destined for export.
The SMMT hopes for caps on energy prices in recognition of the importance of the new generation of electric cars to the country’s climate emergency goals.
“Production of batteries, for instance, is a capital-intensive energy industry. It’s also an energy intensive industry. So being regarded as a energy intensive user would potentially allow us to take greater advantage of caps on energy.”
The industry has energy efficiency targets in place through climate change agreements with the Environment Agency that enable some energy discounting.
But Hawes said: “We are still disadvantaged compared with some of our European colleagues.”
Miyuki Takahashi, Nissan’s general manager for government affairs, told an SMMT conference on Tuesday that trading agreements between the UK and EU were “crucial and indispensable to sustain our business”, which includes its Sunderland manufacturing plant employing 6,000 people.
She added: “We want the UK to be our electric vehicle and battery hub … We are looking to localise many components of the battery and EV supply in the UK, to comply with rules of origin and to build up trade for the UK and Japan.”
While the UK is looking to join an Asia-Pacific free trade area, Takahashi said it was unlikely that it would mean more Nissan cars directly exported from the UK. “It’s much cheaper to send it from Japan – and when we think about carbon cycle, the shipment is a big part of the emissions.”
Adrian Hallmark, the chief executive of Bentley, told the conference the Brexit agreement was functioning but had added administration costs and would need constant updating. “We’ve got another six people, it now costs us £6m more and we’ve got an extra warehouse we didn’t need … The trade deal works – but it’s like we’ve got married and have a whole life together. Now let’s get the relationships working.”
He urged government to help “make the UK a safe haven, a go-to place for battery production” as the transition to electric vehicles approaches. Hallmark warned that otherwise rules of origin in the trade deals, which require most of the car’s value to be locally sourced, would need updating for electric vehicles if tariffs were to be avoided, with the cost of batteries up to three times that of Bentley’s traditional engines: “If we don’t find a way of managing the cost of battery and how it distorts the rules of origin, that will cause problems and create tariffs.”
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UK car industry says Brexit rules are denting competitiveness