UK energy prices risk deterring car industry investors, warns trade body

The recent surge in gas prices has accentuated the higher energy costs UK carmakers face compared with some European rivals and risks putting off potential investors as the industry transitions to electric vehicles, the head of the automotive trade body has warned.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said energy prices put the UK at a “competitive disadvantage” as they are among the highest in Europe. “If you are looking to invest in the UK, [energy prices] give you another reason to pause or look away,” he said on Tuesday.

Britain is hoping to attract investment from battery producers to secure the future of the industry as the UK shifts to making electric vehicles in the coming years. LG and Samsung are among companies in talks to manufacture in the UK.

The “production of batteries is a capital-intensive industry, and an energy-intensive industry”, Hawes said.

He pointed out that the UK’s auto sector, which contributed more exports than any other manufacturing industry, was not classed as an energy-intensive industry. That meant car plants would be unable to tap into the emergency package that the UK government is considering for sectors such as steel with gas prices soaring as winter approaches.

“We are not classified as an energy-intensive user; that is something we need to address,” Hawes said, adding that “the energy we use is going to increase” as the industry moves more towards electric vehicles.

Although there are not huge differences between wholesale energy costs for industry in UK compared with other European countries, manufacturers have long complained about environmental levies they believe make the UK more expensive.

There are concerns that the recent jump in energy costs could be sustained. Some analysts argue that Europe’s reliance on imported gas has exposed it to an increasingly competitive global market that could keep prices elevated for some time. Others, however, dismiss this and argue the market has been temporarily distorted by economic dislocations as the continent emerges from the coronavirus pandemic.

Electric car production is expected to rise as demand increases this decade, with the UK aiming to end the sale of new petrol and diesel models by 2030.

The UK already makes the electric Nissan Leaf and the electric Mini, while Vauxhall will make electric vans at Ellesmere Port and Jaguar Land Rover has pledged to make its next set of electric models in the UK.

But Hawes said that high energy prices were only one challenge facing UK car plants. High business rate costs, risks to supply chains from shortages of lorry drivers and the global shortage of chips for cars were all putting UK factories under pressure.

Despite high demand coming out of the pandemic, UK car production in the nine months to August was a third below the same period in 2019 before the pandemic hit.

Hawes said the recent UK petrol crisis, caused by driver shortages but exacerbated by panic buying, have spurred more interest in electric cars.

“According to the dealer network, inquiries about electric vehicles are up three, four, five times over the past few weeks,” he said.

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