UK Car Production Declines Amid Global Challenges and Transition to Electric Vehicles
Car production in the UK has fallen almost to its lowest since 1954 last year, with approximately 779,584 units rolling off British production lines in 2024, marking a decrease of 13.9 per cent compared to 2023.
Activity levels were only lower during the extraordinary conditions of the pandemic and its associated lockdowns.
This decline highlights the fragility of consumer sentiment domestically and the weakness of global demand, particularly as around eight in every ten cars manufactured in Britain are destined for export.
Sales to the European Union, the largest overseas market, and to China were down by about a quarter and a fifth respectively. However, there was a notable increase in sales to the American market, which rose by 38.5 per cent, potentially influenced by fears of future tariffs.
The Society of Motor Manufacturers and Traders (SMMT), the industry's representative body, emphasised that the transition to producing electric vehicles is also impacting production figures.
According to the SMMT, factories retooling for battery electric vehicles (BEVs) represent a temporary factor contributing to the slowdown.
Both Jaguar and Nissan are preparing to launch new electric car models to align with the zero-emission vehicle mandate, which aims to limit new petrol and diesel car sales to 20 per cent of the market by 2030, with a complete phase-out of fossil-fuel powered vehicles, including hybrids, expected by 2035.
Investment in battery production through new gigafactories is progressing. Currently, the UK ranks just below Slovakia in global rankings, lagging behind the Chinese industry, which boasts an annual output of 27 million units, surpassing that of the United States, Japan, India, and Germany combined.
Mike Hawes, chief executive of the SMMT, provided an optimistic outlook despite British output being expected to only slightly increase in 2025 and reach one million again by 2030.
He stated: "Amid significant geopolitical and trade tensions, UK manufacturers are set on turning billions of pounds of investment into production reality, transforming factories to make new electric vehicles for sale around the world.
"Growing pains are inevitable, so the drop in volumes last year is not surprising. With new, exciting models and battery production on the horizon, the potential for growth is clear.
"Securing this future, however, requires industrial and trade strategies that deliver the competitive conditions essential for growth amidst an increasingly protectionist global environment."
Increasingly ambitious official targets for BEV sales are proving costly for car manufacturers, amounting to around £4 billion in penalties and additional costs to achieve the BEV quota of 22 per cent of all their car sales in 2024.
Mr Hawes described the situation—resulting in considerable distortions in the new car market—as "unsustainable", with no prospects of improvement in 2025 when the BEV quota is set to rise to 28 per cent of sales.
Car manufacturers failing to meet BEV sales targets face a substantial penalty of £15,000 for each petrol or diesel model sold, which poses a significant financial challenge even for premium brands.
If the situation persists, it may force car companies to reduce the production of internal combustion engine models, thereby limiting overall supply and driving prices higher.
The underlying issue remains persistent reluctance among private buyers to transition to electric vehicles, as the majority of BEVs are sold to businesses and fleet buyers benefitting from substantial tax incentives.
In light of the closure of the Stellantis Group's Vauxhall plant in Luton last year, the government announced a review of the zero-emission mandate, with an initial consultation due for completion by February 18th, and potential policy changes expected by summer.
Mr Hawes expressed hope that ministers would demonstrate increased "flexibility" in the zero-emission mandate, possibly considering sales of partially "electrified" full hybrid models, similar to regulations in the EU.
He also reiterated calls for more affordable public charging points for BEVs, given the still high electricity tariffs, alongside incentives aimed at hesitant buyers. He welcomed the £65 million commitment from Chancellor Rachel Reeves for "kerbside" charging points.
Brexit continues to cast a shadow over the automotive sector, which seeks any reduction in trade barriers with the EU, a vital source of components, skills, and investment for the UK, as well as a crucial export destination.
However, it is fair to observe that the optimism once characteristic of the British automotive industry in the early 2010s has been supplanted by uncertainty and apprehension.
