In July 2022, then UK Business Secretary Kwasi Kwarteng said the planned gigafactory at Blyth in Northumberland would be “transformational” for the North East of England. For a total investment of £3.8bn, developer Britishvolt would produce 300,000 lithium-ion (Li-ion) batteries a year, creating 3,000 direct jobs and supporting a further 5,000 in the wider supply chain.
Kwarteng was announcing a £100m government grant intended to unlock private investment to deliver the project. Just six months later, with the grant yet to be received by Britishvolt, the company entered administration.
Another company may yet revive the Blyth project, but the failure of Britishvolt shows the UK falling further behind other European countries in futureproofing its automotive sector. Industry bodies have called for greater levels of government support for a sector that employs close to one million people in the UK, yet structural market issues mean a steady decline of the country’s automotive industry may be inevitable.
Why did Britishvolt collapse?
Rumours of an imminent collapse of Britishvolt had been circling for several months before its entry into administration was confirmed on 17 January 2023. Accountancy firm EY, which has taken on the administration of the company, has said its failure was due to “insufficient equity investment”.
The government funding was intended to crowd in private investors but was also contingent on the company meeting certain development milestones that were not achieved.
David Bailey, a professor at Birmingham Business School and senior fellow for the UK in a Changing Europe programme, says it was always going to be difficult for a start-up like Britishvolt to deliver such a capital-intense project.
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“It wasn’t clear where the £3.8bn was coming from to build out the factory and get producing batteries – and they had no major customers,” says Bailey. “So this idea, just build it and they will come, I think was always a flawed business model.”
Days after administration was announced, Australian start-up Recharge Industries announced it had made a preliminary bid for Britishvolt. Bailey is confident “someone will come in and take it over” due to the site being “ideal for a battery factory”. The plot boasts 95 hectares of land, abundant energy supply given the potential connection to the Norway-to-UK North Sea Link interconnector, and close proximity to the Port of Blyth.
Yet Bailey worries that another start-up will face similar problems to Britishvolt and that the UK government should be doing more to entice an established automotive company already active in the UK, such as Jaguar Land Rover, to take over the project.
Automotive competition with the EU
Research company GlobalData estimates that total global gigafactory capacity, based on publicly announced projects, will be just under six terawatt hours (TWh) in 2030, compared with 1.2TWh in 2022. Bloomberg New Energy Finance predicts it could be as high as 9TWh as early as 2027.
Yet GlobalData forecasts that demand for Li-ion batteries from the light duty automotive sector will reach just 2.8TWh by 2030, and one-third of planned projects are at risk of underutilisation or even failure. This increases the pressure on companies to deliver their projects first to beat out the competition.
There are more than 30 gigafactory projects under development across the EU, and GlobalData estimates Germany will have 6% of the global capacity by 2030. With the failure of Britishvolt, Envision’s planned factory in Sunderland is the UK’s only remaining active gigafactory project.
UK automotive industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) have called for more state intervention. Both the EU and US are undertaking far more generous subsidy schemes intended to reduce China’s dominance of the electric vehicle (EV) sector, both in terms of raw materials and finished battery products. As well as gigafactories, Germany and France are also undertaking lithium refinery projects.
One Germany-based expert on foreign direct investment (FDI) in the automotive sector argues, however, that market structure rather than government support will ultimately determine the location of battery production. They compare the UK automotive sector to a “flat tyre, slowly but inevitably deflating”.
Given how interconnected the automotive sector is, with various suppliers providing parts to create the finished vehicles, the ability to ship goods backwards and forwards through reliable supply chains is vitally important. Batteries are the heaviest and most expensive component of EVs, making them especially uneconomical to move long distances as part of the assembly process.
EV car manufacturing will be located close to gigafactories, and disruptions to trade caused by Brexit mean it will be more attractive to export finished products to the UK rather than manufacture within the country, according to the FDI expert.
They also cite potential currency fluctuations between the euro and sterling, and EU local content rules as other drivers of car manufacturing being increasingly concentrated within the EU.
“If there isn’t a business case, there isn’t a business case. It doesn’t matter how much government subsidy you receive,” according to the FDI expert.
The slow death of the UK automotive sector
There has been little good news for the UK’s automotive sector in recent years. Brexit and then Covid led to a steep decline in investment, and then, in 2021, Honda closed the car production plant facility it had operated in Swindon for 36 years.
According to the SMMT, UK car production fell 10% in 2022 to reach a 66-year low.
“Very little investment came into the UK for several years because of all of the uncertainty over Brexit”, says Bailey. “We were starting from behind anyway and we have a lot of catching up to do.”
Industry bodies say the UK needs six to eight gigafactories to keep future car production at current levels. Without local battery supply, the industry will be significantly reduced.
“I think we would keep some premium and luxury car production, the brands that have a strong British connection,” says Bailey. “That means Rolls-Royce, Bentley, Aston Martin, and to a degree Range Rover, but for the mass car industry, unless we make batteries at scale, we are not going to hold on to that.”