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Nissan’s investment will not restore Britain’s car industry to glory

The grins on the faces of Rishi Sunak, the prime minister, and Jeremy Hunt, the chancellor of the exchequer, told their own story. The two men joined Uchida Makoto, the boss of Nissan, in Sunderland on November 24th for the Japanese car firm’s announcement that it will manufacture three electric models and build another battery plant in the city. Nissan’s commitment follows other bits of encouraging news for Britain’s automotive sector. But just how big a smile is warranted for an industry that has gone into rapid reverse in recent years?

In the year to September 2017 British factories turned out 1.7m vehicles; back then it seemed to be on course to produce 2m cars a year. In the 12 months to September 2023 around half that number emerged. Britain still has many strengths: domestic engineering prowess, flexible labour laws and plentiful supplies of clean energy. But, for the industry to rebound, big foreign-owned car firms have to be convinced that Britain is still a good place to invest as the industry rapidly electrifies.

Fears that the government’s decision to push back a ban on sales of new fossil-fuel powered vehicles from 2030 to 2035 would deter investment in electric vehicles (EVs) have been allayed by a mandate that requires 80% of new sales to be of zero-emission vehicles by 2030. But since eight out of ten cars made in Britain are exported—with six of them going to the EU—they also need convincing that the burdens of Brexit, including tough rules-of-origin requirements for evs exported to the bloc, are tolerable.

Nissan, which has made cars in Britain for more than 35 years and turned out 240,000 of them last year, does seem to have been persuaded. The firm and its partners will add another £2bn ($2.5bn) to a £1bn investment in EVs announced by Nissan in 2021. Among other things, that will pay for another battery “gigafactory” to be built with AESC, owned by China’s Envision, to add to one that already is under construction and an existing smaller plant.

Gigafactories are crucial to the future of the industry in Britain. Under requirements negotiated as part of the post-Brexit free-trade deal for cars, 55% of the value of components in cars exported from Britain to Europe will have to originate in either place by 2027 to avoid 10% tariffs. But manufacturing EVs at maximum efficiency requires a supply of batteries right on the factory doorstep; importing batteries from abroad adds costs, sits unhappily with just-in-time logistics and does nothing for firms’ carbon footprints.

Nissan’s plans add to a sense of reviving fortunes. When Britishvolt, a battery startup, was forced into bankruptcy in January, the only gigafactory due to come on-stream in Britain was the one already being built by Nissan. That jolted Mr Sunak’s government into a belated realisation that keeping large-scale carmaking in Britain would require the sorts of handouts that America and Europe are giving out. On November 26th the government published its battery strategy, which promises more than £2bn to support manufacturing and supply chains. Nissan will probably get around £200m towards its new investment.

Others have already benefited from government largesse. In July Jaguar Land Rover (JLR), owned by Tata Group, an Indian conglomerate, said that it would spend £4bn on a gigafactory in Somerset; a subsidy rumoured at some £500m probably turned the decision against Spain, another potential location. A handout totalling £75m is one reason why Mini, owned by Germany’s BMW, committed in September to invest £600m to upgrade factories in Oxford and Swindon to make two electric models. In the same month Vauxhall, part of Stellantis (whose largest shareholder owns a stake in The Economist’s parent company), began making electric vans at Ellesmere Port on Merseyside, its £100m investment reportedly sweetened with £30m of taxpayers’ cash.

These announcements reduce the risk of a downward spiral in the industry but do not secure a prosperous future. Mini and Stellantis are planning to import batteries, which makes it less costly to shift production in the future. JLR’s plant, set to start production in 2026, may eventually make 40 gigawatt hours (gWh) of batteries a year; Nissan’s gigafactories will probably add 20gWh annually by the end of the decade. The Faraday Institution, a think-tank, reckons that Britain will need 100GWh of battery capacity a year by 2030 and 200GWh by 2040 if the industry is by then making 1.8m cars a year. Even that is far behind Germany, where 325GWh a year is set to come online by 2030.

Benchmark Mineral Intelligence, a consultancy, reckons that 408 gigafactories will be in operation worldwide by 2030, with a capacity of more than nine terawatt hours. On current plans only 0.6% of that is set to be located in Britain. Toyota, Britain’s other big carmaker (and the world’s biggest manufacturer), has yet to show its hand on EV plans, but it will have plenty of options elsewhere in Europe. Nissan’s investments, and those like it, keep Britain in the game. They are not enough to restore the industry to its former glory.

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This article was originally published by a www.economist.com . Read the Original article here. .

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