What does the change of government mean for the UK Automotive Sector?
· Posted on: July 5th 2024 · read
The automotive sector is unlikely to feature too highly on the new government’s “to do” list. It’s lack of exposure during what was a long election campaign illustrated that it wasn’t considered a vote winner and only Reform UK and the Green Party placed Net Zero with any real prominence. From a political point of view the sector is not broken and therefore it will be triaged to well down the priority list.
What we do know is that Labour’s manifesto had brief mention as to their plans to support the transition to electric vehicles.
- As part of the output of the National Wealth Fund the party committed £1.5bn to invest in new Giga factories to produce batteries “so our automotive industry leads the world”. Hyperbole aside this is a positive statement but one that is short on context and detail.
- They will support the transition by accelerating the roll out of charge points.
- They will restore the original ZEV Mandate “phase out” of ICE vehicles to 2030 (from 2035)
- They will standardise the information supplied on battery condition to support buyer confidence in the Used EV market.
Light on detail like much of what we have observed from the parties during the campaign but back in 2023 the then Shadow Secretary of State for Business and Industrial Strategy, Jonathan Reynolds published a more substantial strategy document under the title of Labour’s Automotive Plan.
We have reviewed this document and would conclude that it identifies most of the key challenges that the sector faces and offers some solutions to the key issues. Perhaps of equal importance is the intention to
Long term, apolitical direction will be viewed as a positive by most invested in the sector. We need certainty in terms of regulation and partnership as the sector undergoes the largest transformation since its emergence 100 years ago.
design policy for the long-term, in partnership with business, and ensure consistency across government departments. Where possible, we would do so in a technology-agnostic manner to support the full range of innovative technologies being considered across the sector.
In terms of strategy the section headings give an insight to what we can expect to see in terms of legislative action.
- Guaranteeing a Consistent Policy Environment
- Accelerating Domestic Battery Manufacturing
- Building an EV Workforce
- Supporting R&D and Innovation in EV Technology
- Delivering a Comprehensive EV Charging Network
- Giving Consumers the Information they Need to Confidently go Electric
- Continuing Our Exporting Success
- Securing Resilient Supply Chains
- Tackling High Energy Prices
There are some tactics and commitments within each section and whilst not exhaustive our view is that the correct priorities are identified. There is clear evidence that this strategy is well researched and has had input from key stakeholders. We also have a sense that the interest of consumers is a consistent thread.
There is an understanding of how important the Used Vehicle market is the sector.
There is an acknowledgement of a technician skills shortage and plan to replace the Apprenticeship Levy with a Growth and Skills Levy to address this.
There is commitment to accelerate funding and approval for expanding the charging networks and ensuring that access to public charging is frictionless in terms of digital applications.
There is also a recognition that in these fragile geopolitical times that supply chains need to be characterised by “friendshoring” with allies working together to secure minerals and raw materials for EV manufacture.
We cannot be sure how much of this carries over into government policy but there are reason to be hopeful that the right task are identified and will be invested in. However, it is unlikely we will see additional fiscal incentives support OEM, Dealer and Fleet Operator profitability. Labour seems to be committed to making it easier for customer to transition to EVs but not necessarily to subsidise the product.
What is missing at this stage is any real fiscal vision as to the balancing of tax receipts as we shift from ICE to EV. Fuel Duty will diminish. Roads need repair more than ever and there needs to be an economically convincing argument for persuading people to swap to EVs.
With that in mind we would suggest that these points are considered as part of the strategy
5 Things a new government can do
- Restore environmental policy to a position of paramount importance for the long term future of the UK economy and give long term certainty to the UK automotive sector.
- Exempt EVs from the Expensive Car supplement that drives increased VED for cars over £40,000.
- Install a price cap for public charging to prevent providers exceeding the cost per mile of running an average ICE vehicle.
- Evaluate how the current taxation system can be re-balanced to drive more sales to private customers who do not have access to a salary sacrifice schemes or benefit from the low taxation on company cars.
- Ensure that the automotive manufacturing sector is positioned at the centre of industrial policy and leverage investment incentives to keep production of EV in the UK.
5 Things Car Manufacturers can do
- Follow the likes of Kia and Hyundai by providing longer warranties than the ICE derived industry standard of 3 years. This will provide peace of mind for consumers who are not only buying new but used EVs.
- Work with insurers to improve access to repairs for EV by training more specialist technicians and improving parts availability.
- Collectively work with other OEMS to create supercharger networks akin to that of Tesla.
- Be more creative in bundling services within the sale of EVs so that owning one is as frictionless as possible and an advantage over an ICE car/van
- Have a comprehensive remarketing strategy for each and every EV that is sold.
Conclusion
We anticipate that the next 18 months for the sector will be challenging but not existentially so. OEMs are rapidly improving EV technology and there is evidence of pricing convergence with ICE products. The new Prime Minister has acknowledged in his maiden Downing Street address that actions and not words are what is required for the UK citizens. Hopefully, the enthusiasm and energy of a new regime will aid in the delivery of policy which so often seems bogged down in process and bureaucracy. For now lets all be encouraged that there is at least a semblance of a plan for automotive in the UK.
The cars are mechanically a lot simpler and there seems little reason to carryover practice from the ICE technology other than to shorten ownership cycles.
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