Written evidence from Green Alliance (BEV0021)
Committee Inquiry: Batteries for electric vehicle manufacturing
Written response submitted by Green Alliance
About Green Alliance
Green Alliance is an independent think tank and charity focused on ambitious leadership for the environment. Our work crosses climate, the natural environment and resource use. Since 1979, we have been working with the most influential leaders in business, NGOs and politics to accelerate political action and create transformative policy for a green and prosperous UK.
a) Yes. The UK was the eighth biggest exporter of cars by both percentage of global exports and highest value worth of cars in 2021. Production of battery electric vehicles (BEVs) in the UK was up 4.8 per cent in 2022 and electric vehicle (EV) manufacturing now accounts for over thirty per cent of car production in the UK, according to SMMT. Aside from the ZEV mandate requiring new vehicles to be battery electric from 2035, the volume of electric vehicles made for export will also increase; the top three destinations for export are the EU, US and China, which combined make up almost 80% of UK exports. These markets are underway in their transition to EVs, as demonstrated by the electric vehicle tax credits in the Inflation Reduction Act (IRA), the European Union’s 2035 phase out date for fossil fuel cars, and record sales of EVs in China.
b) Several large UK manufacturers are already moving to producing electric vehicles: Nissan's next electric model will be produced at Sunderland plant from 2024, and the Stellantis plant in Ellesmere Port supplies all-electric vehicle production. Moreover, some UK manufacturers who have previously committed to transitioning their fleet to EVs have yet to enter a deal with gigafactories, highlighting the need for more demand.
c) UK battery demand for car manufacturing is estimated to be between 80GWh and 100GWh in 2030. Currently, the UK only has 2GWh delivered, and 12GWh planned to come from Envision AESC’s second plant. Although other plants have been announced, they won’t all produce batteries solely for the EV market, and unless further plans are developed to produce batteries, the UK risks falling short of the at least 80GWh required.
d) As only 21% of UK manufactured cars are sold domestically, the impact of the ZEV mandate on UK vehicle manufacturers would in the short term be limited, as outlined by Transport and Environment. Yet the ZEV mandate could itself act as a spur for investment in electric vehicle manufacturing in the UK as it guarantees domestic demand. A lack of domestic battery manufacturing would not mean we were unable to meet the ZEV mandate, but the regulation could act as a tool to encourage battery manufacturing here in the UK.
e) The Trade and Cooperation Agreement (TCA) between the UK and the European Union means that EVs must have at least 55 per cent UK or EU content and an originating battery pack. The battery itself must have either 65 per cent UK or EU content for the cell or 70% for the battery pack. If UK EVs do not meet these requirements by 2027, then they will be subject to a ten per cent tariff. To continue selling EVs in the EU at a competitive rate, domestic battery production will be required. The UK cannot rely on importing batteries from the EU to meet the ROO principles due to the battery transportation costs and regulations, which will deter car manufacturers.
f) Additionally, lithium-ion batteries are hazardous to transport due to fire risks, therefore are classed as ‘dangerous goods’ and subject to complex regulation that may vary at national and regional levels. This increases costs to car manufacturers relying on imported batteries.
g) The UK risks significant job losses in its historic car manufacturing sector if vehicle manufacturers relocate to countries in which batteries are easier and cheaper to produce. There are currently 181,000 UK jobs within automotive manufacturing. Without large scale battery production, the Faraday Institution estimates jobs in the automotive sector could fall to as low as 20,000 as car manufacturers phase out the production of ICE vehicles. This is in stark contrast to the projected increase to 270,000 jobs by 2040 if an EV manufacturing and battery industry were to be developed. These jobs will primarily be in the West Midlands and north of England, the two regions with the highest number of vehicle manufacturing plants in the UK.
h) The UK also risks following behind on battery recycling. In the short term most materials available for recycling will be gigafactory scrap, accounting for 90 per cent of recycling plant feedstock in 2030 in Europe. This is compounded by the fact that the current legislation around waste batteries in the UK does not specify collection rates or include reporting obligations for EV batteries. This means that many UK manufacturers currently export used lithium-ion batteries to the EU, notably to the Umicore facility in Belgium. These factors mean the UK risks not being able to develop its battery recycling skills and expertise.
i) There are several other domestic ends uses for batteries that would provide a market for UK production. In addition to batteries for private car use, the UK market for electric vehicles is expected to grow. This overall market will be bolstered by the 2035 phase out date for the sale of ICE Heavy Goods Vehicles (HGVs), and the introduction of a phase out date for fossil fuel buses.
j) Although the private car accounts for the majority of vehicles manufactured in the UK, commercial vehicle production has grew by 39.3 per cent in 2022. Latest estimates from the Advanced Propulsion Centre estimate that battery demand for light commercial vehicles (LCV) and heavy goods vehicles (HGV) will require an extra 16GWh per year by 2030 as manufacturers of these vehicles phase out ICE production. Smaller batteries for e-bikes and e-cargo bikes can also provide an end use for domestic battery production. Short-haul aviation could also be an end use in the longer term as demand increases to meet the UK governments proposed target of zero emission domestic aviation by 2040.
k) Outside of transport, batteries will be required for energy storage, with National Grid projecting up to 20GWh of storage needed by 2030, providing an additional end use for domestic battery production.
l) Currently the UK has not guaranteed its own supply of critical raw materials and the Critical Minerals strategy does not outline sufficient delivery plans for securing supply.
m) The amount of critical materials needed depends on the level of UK ambition to be a battery producer and which types of batteries will be used in the future. The two main commercially available battery chemistries, Nickel Manganese Cobalt (NMC), and Lithium Iron Phosphate (LFP) have different critical raw material requirements.
n) At today’s levels we estimate the UK would require 24,000 tonnes of nickel per year if manufacturers focused on high nickel NMC chemistries, or 16,500 tonnes if LFP were to become a key chemistry produced in the UK. An understanding of what types of batteries UK manufacturers intend to produce is key to understanding the amount of critical raw materials that could be met through recycling. Import supply chains will also vary depending on which chemistry is in primary usage in the future.
o) To secure supply, the UK must develop a plan for sourcing domestic materials and should urgently focus on increasing circularity within the EV supply chain to decrease the need for virgin critical raw materials. Manufacturers should be required to carry out stringent due diligence process to ensure any critical materials that are imported are to the highest environmental and social standards.
p) The automotive sector is concerned with maintaining tariff-free trade with the EU post 2024, as this is conditional on meeting ROO requirements. Thresholds need to be set appropriately for EVs, given their generally higher market value than ICE equivalents, to allow for them to meet the ROO requirements for exported vehicles. There are concerns with timelines for ROO phase in, with SMMT arguing they need longer lead times to transition.
q) The transport sector is estimated to need an additional 175,000 employees by 2035. Automotive manufacturing will require 50,000 people to be reskilled by 2025, increasing to 100,000 by 2035-2040. Battery manufacturing is one of the primary skills gaps in the sector with between 7,500 and 10,000 workers estimated to be needed in in 2030.
r) Skills shortage is a major challenge for vehicle producers, who face dual pressures from upskilling to manufacture and maintain new EV fleets, while simultaneously requiring the capacity and parts on hand to maintain the existing ICE fleet for years to come. SMMT and the Faraday Institution estimates that we will need 5,000 battery engineers by 2025, rising to 20,000 by 2030 to keep pace with demand. There are currently very few qualified battery manufacturers in the UK.
s) Green Alliance’s work has suggested several ways to alleviate skills pressures in the net zero economy. Our focus group research suggests that a key barrier for the public to access green jobs is a lack of real or perceived financial security. This is further impacted by the cost of training, and the cost of time off to train. Meanwhile, employers are wary of investing in staff for fear they may leave and there will be inadequately skilled labour to replace them. Government will need to assume some of this risk offering similar incentives to invest in staff as there are for capital. Options include, restoring the union learning fund, or applying the super-deduction to a limited set of green training courses. More information is available in our reports, Closing the Gap and Powering the Labour Market.
t) Whilst it is more expensive to manufacture battery packs in the UK than in China, Green Finance Institute estimates that the cost of manufacturing a battery pack in the UK is comparable to Germany. The UK has some of the highest energy costs in Europe, with SMMT estimating that UK manufacturers spend £50million more per year in energy costs than their EU counterparts. Since battery production is an energy intensive industry this makes it a critical factor in determining the attractiveness of a particular site.
u) The UK’s ability to be cost competitive is also being impacted by larger subsidies for battery production abroad. This includes the Inflation Reduction Act, which provides subsidies to battery manufacturers, and any reactionary legislation the EU introduces to become competitive with the IRA. The UK could replicate similar legislation to become cost competitive.