UK Auto Industry Growth at Risk Without a Post-Brexit EU Deal

UK car production saw growth in May 2023, but relies heavily on exports to the EU. Brexit trade negotiations will determine the future of UK auto manufacturing. Most cars built in the UK are exported, with Europe purchasing over half. The industry calls for a zero-tariff deal with the EU to enable continued growth. The UK also faces challenges transitioning to electric vehicles without better infrastructure and government support.

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The British automotive manufacturing sector showed promising growth in May 2023, but the long-term outlook remains uncertain without a trade deal between the UK and European Union. According to new figures from the Society of Motor Manufacturers and Traders (SMMT), UK car production reached 79,406 units in May, the highest output for the month since 2019. However, industry experts warn that this growth could reverse quickly if Brexit negotiations fail to secure continued tariff-free trade with Europe.

The vast majority of cars built in the UK are exported, with overseas shipments accounting for 79.5% of total production in May. Europe remains by far the most vital export destination, purchasing 56% of UK auto exports. By contrast, combined shipments to the US, China, Japan and Australia represented just 28% of exports. With such a heavy reliance on the European market, Brexit poses a serious risk to the British automotive sector.

SMMT has called for the UK and EU to reach a zero-tariff, zero-quota trade agreement to safeguard the industry's future. Without a deal in place when the Brexit transition period ends on December 31, 2021, UK auto exports to Europe could face tariffs of up to 10%. Additional border delays and costs stemming from customs procedures and regulatory checks could also damage competitiveness. Such a scenario would likely force manufacturers to downsize UK operations in favour of plants in lower-cost EU nations.

Domestic UK auto demand is recovering post-pandemic but remains well below pre-crisis levels. Only 16,188 vehicles out of the 79,406 built in May were destined for British customers. And while domestic sales expanded 45% year-over-year, exports to Europe grew at nearly double this rate. Overseas shipments will therefore continue driving UK auto production, underscoring the critical importance of frictionless trade links with the continent.

The UK auto industry also faces major upheaval as manufacturers transition to electric vehicles (EVs) over the next decade. With the sale of new petrol and diesel cars banned from 2030, carmakers are investing billions into electrification. However, logistical hurdles threaten the pace of this shift. Insufficient public charging infrastructure, high EV costs and lack of government support are hampering the transition, according to industry group Logistics UK.

Brexit compounds these electrification challenges. Rules of origin requirements could exclude UK-built EVs from tariff-free entry into the EU if battery cells are imported from Asia. And with no major battery factories currently located in the UK, manufacturers face supply chain uncertainties. Auto giant Tata Motors plans to build a UK Gigafactory to produce EV batteries, but production is still years away.

The recent uptick in British auto manufacturing demonstrates the sector’s potential. But realising this promise hinges on securing a post-Brexit trade deal that guarantees the frictionless movement of vehicles and components between the UK and Europe. Failure to achieve this would jeopardise hundreds of thousands of British jobs and undermine the country’s transition to electric mobility. With the Brexit deadline imminent, UK and EU negotiators must work diligently to safeguard the future of this vital industry.