UK warned not to bother racing US, EU on EV subsidies

Plus: Blackadder feels let down by the electric dream

A think tank says Britain is trailing its European rivals in the transition from fossil fuel to electric cars, and Brexit isn't helping. But subsidies won't either, the report insists, which pushes for more support for local battery production.

Policy Exchange, a Conservative group, authored the paper, claiming Brexit had made the UK "a less attractive investment location for non-British manufacturers," noting there was uncertainty over the future direction of Jaguar Land Rover, the largest employer among UK-based car assemblers. It also noted that the auto industry is "almost entirely foreign owned."

The think tank argues that the main reason why Asian companies went to the EU and not to the UK was not the "size of the subsidy but the size of the market" – and the proximity of the big European carmakers. That was an advantage "which the UK could not match."

So what's their solution? That the UK should "focus on other ways of encouraging investment, and on removing obstacles – most obviously high energy costs – that put UK-based battery firms at a disadvantage."

The report cites a "substantial number of early-stage battery firms," including Nexeon, born out of research at Imperial College, which is developing silicon-based anode material; Nyobolt, which is developing ultra-fast battery charging tech; Ilika, Southampton Uni specialists in solid-state batteries; and About Energy, a joint spin-out from Imperial College and Birmingham University that is working on a battery modelling technique that had been developed at the Faraday Institution.

Even so, the paper's author, Jeffrey Owen, admits that self-sufficiency in the battery supply chain is not a realistic objective for Britain – "even if more gigafactories are built the UK will remain a significant importer of battery components and materials."

Owen said the government, whose approach thus far he characterized as "erratic", should act more strategically: "Where there are obstacles which discourage investment, such as high energy costs, the government should seek to remove or mitigate them."

UK chemicals multinational Johnson Matthey last year announced plans to build an £80 million ($96 million) "gigafactory" in southern England to produce hydrogen fuel cells and electrolyzers that could one day feature in roadside freight ops. The same company just a year earlier had found itself in a position where it had to exit the battery materials business in a blow to Europe's ambitions to build a homegrown supply chain for electric cars. According to Benchmark Mineral Intelligence, the UK company said it had concluded the potential returns from the business would "not be adequate to justify further investment" due to intense competition.

The UK auto industry has "nearly 200,000 employees, mostly in the Midlands and the North," according to the paper.

Industry support

The EU, like Britain, has expressed discomfort over the US Inflation Reduction Act, where subsidies to the tune of $369 billion meant to bolster the greening of the US energy grid are being dished out. European economic think tank Bruegel has opined that the expected IRA green subsidies are of "similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain far larger." And the changes are pretty protectionist, say critics, pointing out that only six US-based companies qualified when it came to tax credits for buyers of their electric vehicles and hybrids.

There is also some anxiety that "other US advantages, including lower energy costs" might cause some European companies to consider shifting their investment from Europe to the US.

China's not been shy with a tax break either, with its government recently voting to continue and improve vehicle purchase tax reduction and exemption policies for green energy vehicles. According to data from the China Association of Automobile Manufacturers, from January to April this year, the production and sales of new energy vehicles reached 2.291 million and 2.222 million, an average increase of 42.8 percent year-on-year, with the market share of EVs reaching 27 percent.

According to the European Automobile Manufacturers' Association (ACEA): "From January to April 2023, the EU car market grew by 17.8 percent to 3.5 million registered cars. Despite the year-on-year improvement, sales were still down by 22.8 percent compared to the same period in 2019, highlighting the EU car market's ongoing struggle."

According to the UK's Society of Motor Manufacturers and Traders (SMMT), the UK new car market recorded its ninth successive month of growth in April, with an 11.6 percent increase to reach 132,990 registrations. The performance remains 17.4 percent down on 2019 volumes, says the org.

We asked the SMMT what it thought of the report, given both the EU and the US have packages for their consumers providing incentives to buy locally. We will update when we hear back.

While the necessity for subsidies might be debatable, the final point the paper makes is salient. "What is also important, for this and other industries, is a greater degree of stability in government policy."

The British think tank echoes recommendations from the King report last year on post-Brexit science policy, which said research had been hurt by a short-termist outlook as well as "frequent policy changes especially when strategies that are supposed to be long-term are abandoned after a few years."

Policy Exchange said:

The erratic conduct of UK industrial policy over the last two years has been confusing for business and bad for investment. The government is right to support the auto industry as it makes the transition to electric vehicles, but that support must be consistent, and based on a realistic assessment of where the industry now stands and how best it can compete in the world market.

Sustainability

Also in the background is the shadow of the ambitious targets set for the automotive battery industry and the larger EV industry, which, as we've pointed out before, is servicing a demand that is only growing. Some of the barriers for electric carmakers include a large amount of requisite semiconductors (relative to a combustion engine vehicle) and, of course, sourcing batteries (and the chemicals needed to produce them).

Meanwhile, Mr Bean/Blackadder actor Rowan Atkinson – who has a degree in electrical and electronic engineering and a master's in control systems – said at the weekend he felt "duped" by the promise of electric cars, writing in a comment piece in The Guardian that there are "sound environmental reasons not to jump just yet."

His argument was that, despite the hopes of zero exhaust emissions, the "perverse choice" of lithium-ion batteries in most EVs means the car's most crucial component contains "many rare earth metals" and requires huge amounts of energy to make, not to mention that it only lasts about 10 years. The Register should point out here that despite this, greenhouse gas emissions associated with an electric vehicle over its lifetime are typically lower than those from an average gasoline-powered vehicle, "even when accounting for manufacturing," as the US Environmental Agency puts it.

Atkinson said he looked forward to the replacement of the "imperfect" solution of current lithium battery tech with greener power, perhaps hydrogen fuel cells, in the future. He also said people should hang onto their older model cars for longer to cool off the production of cars more generally, buy used vehicles, and use them as little as possible.

While an OPEC for car battery metals is unlikely to take off in their countries of production (China, the UK and the US almost exclusively run the mines), some members of the actual OPEC decided to put the squeeze on production just this weekend. In a bid to protect its profits, Saudi Arabia's energy ministry said the country would drop its output to 9 million barrels per day in July from around 10 million a day in May, the biggest reduction in years.

Perhaps it's time to buy a bicycle. ®