Batteries for electric vehicle manufacturing – Report Summary

Summary

Harnessing power has been at the core of the UK’s industrial success since the Industrial Revolution. Today, the UK is in a global battery race with competitor countries that want to develop their industrial capabilities in the battery sector. China is dominating the race, while the UK lags far behind many of its competitors. Other countries, especially in Europe and North America, are rapidly expanding capacity and are expected to gain a larger share of the global battery market by 2030.

Gigafactories in the UK

Large scale production of batteries takes place in gigafactories. The UK faces a gigafactory gap, because of insufficient domestic manufacturing capacity to satisfy UK industry’s demand for batteries. Satisfying demand from the UK’s automotive industry and other sectors will require 100GWh of battery manufacturing capacity by 2030. That requirement will increase to 200GWh by 2040. The UK, however, currently has only one gigafactory, which has less than 2GWh of capacity. It is run by Envision AESC near Nissan’s plant in Sunderland. More gigafactories are under development, albeit at different stages of planning and construction. At best, announced plans satisfy a little over half the capacity the nation needs by 2030. Time is now running short. The UK has a limited window in the next three years to attract further investment into this sector.

A failure to invest in battery manufacturing could cause a gradual decline in automotive production in the UK because global original equipment manufacturers (OEMs) might prefer to locate electric vehicle production overseas in countries hosting clusters of gigafactories. There are 160,000 people directly employed in the automotive industry, but the sector supports many more jobs in the wider economy. Employment in this industry is concentrated outside of London and the South East, especially in the West Midlands, North East and North West of England. Many of these jobs could be at risk if OEMs decide to locate electric vehicle manufacturing elsewhere because of a lack of domestic battery manufacturing capacity. Building an industrial base of gigafactories in the UK is strategically important for the UK’s energy security, for national security and for the UK’s ability to reach Net Zero and to unlock the benefit of economic growth, new jobs and new tax contributions from green industries.

Automotive manufacturers comprise most of the demand for batteries. Large global OEMs with vehicle assembly plants in the UK are expected to have enough demand for batteries to justify building gigafactories. However, the UK needs gigafactories that can cater for the diverse array of vehicles built in the UK, and other sectors outside the automotive industry that are likely to need batteries from 2030 onwards. Serving those markets will deliver strategic benefits.

The battery supply chain

Global battery supply chains, and especially the upstream supply of critical minerals, have environmental, social and governance challenges. Battery supply chains are heavily concentrated in China. The UK’s dependence on such supply chains creates a strategic vulnerability for the country, especially if China restricts exports of materials and components that the UK needs. The UK Government must continue to collaborate internationally, especially with our allies, to diversify the battery supply chain, safeguard the thousands of tonnes of critical minerals required for future battery production, ensure that batteries are produced to high environmental and social standards and to safeguard UK consumers from the risks of consuming products made in unethical ways.

The UK cannot have a self-sufficient supply of lithium-ion batteries and will continue to rely on imports of raw minerals, materials and components. There are strategic benefits to building the UK’s industrial capabilities across the battery supply chain, but especially in midstream processes such as the refining of raw minerals and the manufacture of cathodes and anodes.

A battery supply chain in the UK would enable businesses based in this country to manufacture batteries sustainably and ethically. Such a supply chain would offer the UK a competitive advantage over other markets, especially among the many consumers who demand higher environmental, social and governance standards. The UK’s access to low-carbon sources of electricity means that batteries produced in the UK will be produced more sustainably than those in China and many European countries.

The Government must:

• explain how it will ensure the UK develops the capacity to build the battery supply needed by the nation to achieve our targets for Net Zero.
• specify strategically critical industrial capabilities within the battery supply chain and set out the key interventions to incentivise businesses that can deliver those capabilities to locate in the UK. Those specifications and interventions could be explained either in the forthcoming UK Battery Strategy or in the Government’s response to this Report.
• explain how the Government plans to promote robust environmental, social and governance structures across the battery industry domestically and globally to promote transparency and a green and clean battery supply.
• introduce regulations requiring batteries available on the UK market to come with a battery passport explaining for consumers how sustainably and ethically such batteries were constructed.

Encouraging investment into the battery supply chain in the UK

Global competition in relation to the electric vehicle supply chain has intensified following the passing in 2022 of the Inflation Reduction Act in the United States. The Inflation Reduction Act has caused investment to flow into the electric vehicle supply chain, especially gigafactories, in the United States at the expense of Europe. The UK Government must urgently respond to intensified global competition with an internationally competitive package of long-term support to attract private investment into gigafactories and the wider battery supply chain within the UK.

The UK is in a race with other large markets that are offering significant subsidies to boost domestic production of electric vehicles and batteries and onshore businesses in the supply chain. The UK Government does not necessarily need to match the scale of subsidies on offer in these markets, if the UK’s overall package is internationally competitive. However, the UK Government must provide a long-term stable business environment, with conditions that de-risk investments in the UK’s battery supply chain. The Government needs to set out a package of measures on subsidies, land access, low cost power, skills, de-risked supply chains, tariff-trade and research and development support. Specifically, the Government must:

• improve the UK’s offer of financial support to ensure that it is globally competitive. The Government needs to substantially increase the amount and variety of financial support available. It should conduct a benchmarking review to determine the scale, scope and diversity of financial support required.
• provide longer-term certainty that UK businesses in the battery supply chain can access electricity at a comparable cost to competitors in other international markets. For example, the Government could underwrite long-term contracts between energy suppliers and businesses in the battery supply chain.
• designate strategically important gigafactory sites and work with local partners to put together a targeted package of support to attract investors and ensure gigafactories are built faster. These sites should be given priority for improvements to energy and transport infrastructure. The Government should work with local partners to grant those areas special economic status.
• address gaps in the skills needed to support gigafactories and other businesses in the battery supply chain. The Government should ensure that mayoral combined authorities or local councils—especially those that govern strategically important sites where gigafactories could be built—have adequate and flexible funding to tailor support for local training programmes. Offers of financial support to businesses in the battery supply chain should be conditional on these companies investing in upskilling and reskilling employees from the automotive industry and other sectors.
• secure tariff-free access to global markets for electric vehicle and batteries manufactured in the UK and de-risk access to the requisite critical minerals and supply chains through agreements with our allies.
• put research and development into battery technology on a long-term footing to ensure that the UK remains at the cutting-edge of battery technology.

It is vital that the UK government simplifies and accelerates the speed with which complex packages of support can be developed for potential investors.

EU-UK rules of origin

We support the localisation of more of the electric vehicle supply chain in Europe. However, the UK Government and the European Commission have underestimated the timeframe required for these supply chains to develop. Introducing stricter rules of origin requirements from 1 January 2024, as they¹ currently plan to do, could lead to serious unintended consequences for the UK and the EU. For instance, placing a 10% tariff on electric cars, but not on petrol and diesel cars, would send the wrong message to consumers, who should be encouraged to buy zero emission vehicles. Manufacturers in the UK and the EU are also at risk of losing market share to cheaper electric vehicles imported from China. The UK and the EU should agree at least a three-year extension to the current rules of origin requirements to allow more time for a supply chain in Europe to develop.