The future of electric vehicle production in the UK is under threat unless the Government reworks the Brexit deal, Vauxhall parent Stellantis has warned.

Stellantis has warned that EV manufacturers will need to stop UK production if the cost of electric vehicle manufacturing becomes uncompetitive

The group, which also owns Peugeot, Citroën and Fiat among other major brands, said parts sourcing rules agreed under Brexit were impacting carmakers’ plans and urged the UK to reopen negotiations.

Under the so-called ‘Rules of Origin’ agreed under Brexit and ‘hard-wired’ in the EU-UK trade agreement, 30% of batteries and 40% of electric vehicles must originate from the EU or the UK.

But from 1 January 2024 until 1 January 2027, this increases to 45% of the vehicle and 50-60% of batteries. If this is exceeded, carmakers will have to pay a tariff of 10%.

In its submission to a commons committee inquiry into supply of batteries for EV manufacture, Stellantis has warned that the tougher legislation would impact the sustainability of both its own plants and those of other carmakers.

“If the cost of electric vehicle manufacturing in the UK becomes uncompetitive and unsustainable, operations will close.

“Manufacturers will not continue to invest and [will] relocate manufacturing operations outside of UK, as seen with previously established UK manufacturers such as Ford and Mini.”

In July 2021, Stellantis – the world’s fourth biggest carmaker – announced plans to invest £100m to turn Ellesmere Port into its first dedicated electric vehicle manufacturing site, safeguarding the plant’s future.

But responding in February to the ongoing committee inquiry, it said the sustainability of its operations and other carmakers’ is being jeopardised by the rules of origin.

Its submission to the Business and Trade Committee continued: “If we source batteries from mainland Europe and China, as currently planned, our UK Stellantis plants will also be at a competitive disadvantage due to the higher logistics costs that we will face to transport the batteries from mainland Europe to the UK.

“This is a threat to our export business and the sustainability of our UK manufacturing operations.”

Stellantis has confirmed that its Ellesmere Port site will start manufacturing the Vauxhall Combo Electric, Peugeot e-Partner and Citroën e-Berlingo small electric vans this year – but it’s urged for the current rules of origin to be maintained until 2027 to ensure the viability of UK manufacturing isn’t threatened.

And the group also warned of the impact of “insufficient battery production” on UK plans to phase out petrol and diesel cars and vans by 2035.

“To reinforce the sustainability of our manufacturing plants in the UK, the UK must consider its trading arrangements with Europe,” it said.

“If we are unable to rely on sufficient UK or European batteries, we will be at a major competitive disadvantage. In particular against Asian imports.

“We need to reinforce the competitiveness of the UK by establishing battery production in the UK.”

Rising concerns for EV battery production capability in UK

The commons inquiry into supply of batteries for EV manufacture has also heard evidence from battery specialists, indicating that the UK is falling behind in the race for production capability.

It follows a series of recent setbacks for the sector, including the Government-championed battery start-up Britishvolt which entered administration in January 2022 and has since been bought out by Australian firm Recharge Industries. The last week has also seen Tesla say it’s mulling “significant investment” in France, after CEO Elon Musk met with President Emmanuel Macron.

Benchmark Mineral Intelligence, which appeared in front of the committee, has accused the UK of “sleeping” while the rest of the world built battery plants for a new industrial era centred on lithium-ion batteries and electric vehicle.

CEO Simon Moores warned that the UK is very far behind in the global battery arms race and the buildout of lithium-ion batteries for electric vehicles and for energy.

He said: “At the moment, the UK does not have a strategy. It does not have a runner in this race. It can talk about electric vehicles and about being involved in energy storage, solar and wind, but unless you are making batteries here and you have the chemical plants to fuel those batteries – the midstream of the supply chain – you are not involved in the industry or in this energy storage revolution.”

In its submission, the UK’s Society of Motor Manufacturers and Traders (SMMT) has said the rules of origin for batteries pose a significant challenge to manufacturers on both sides of the Channel.

Mike Hawes, SMMT chief executive, continued: “At a time when every country is accelerating their transition to zero-emission transport, and global competitors are offering billions to attract investment in their industries, a pragmatic solution must be found quickly. We urgently need an industrial strategy that creates attractive investment conditions and positions the UK as one of the best places in the world for advanced automotive manufacturing.”

Lauren Pamma, director of transport programmes at the Green Finance Institute, also said that urgent reform was needed to avoid making the UK a “far less attractive destination for the automotive and transport industry, and other sectors, that underpin our future economy”.

She continued: “Against the context of growing demand for batteries, the key players are already established: China holds 85% of the current market and is expected to remain the market leader, while the US Inflation Reduction Act has opened up $369bn (£286.2bn) in funding that is drawing investment in renewable and green industry into the US. The UK cannot rely on business as usual and must invest in building a battery manufacturing capability if we are to compete as a global green business leader.

“There is still time to do that, but we must act quickly to develop an end-to-end industrial strategy accounting for the full scope of battery demand and production. Policy signals are crucial to encourage investors to enter a sector that they may not have otherwise. Innovative solutions, such as a Battery Investment Facility (BIF) that blends government and private finance, are critical to support businesses access finance to scale.”

Andy Palmer, chairman of European battery manufacturer InoBat, spoke to BBC radio.

“The cost of failure is very clear. It’s 800,000 jobs in the UK, which is basically those jobs associated with the car industry,” said Palmer, previously operating officer at Nissan.

“If you don’t have a battery capability in the UK, then those car manufacturers will move to mainland Europe.”