Could the British Automobile Industry die in the ICE to Electricity Transition?

Impact of Brexit on British Automobile Industry

The British manufacturing industry has been facing challenging times of late due to the Brexit uncertainty which has made manufacturers reluctant to invest in the UK as they do not know how the trade and regulations would pan out with Europe. Till now, the UK has zero customs duties with the rest of Europe making it ideal to ship products from the UK to other parts. However, due to a demand slump many of the major automobile companies such as Honda, JLR and others having been closing plants and firing thousands of workers. also, read Will The Car Industry Go Into A Terminal Decline Like The Utility Industry?

This is not only due to a cyclical factor which is Brexit but also due to the structural changes taking place in the global automobile industry. A mixture of a slowing economy and the influence of the sharing economy has seen car sales go down in many countries. The move towards Electric Vehicles has also made most car makers recalibrate their future strategies with many companies such as Volkswagen deciding to completely go Electric in the near future.

The transitions to electric will happen over the next decade or two and will lead to major changes in the structure of the market. Companies that are not agile or smart enough may see themselves going out of business while new automobile market leaders from China may start dominating the world stage given their huge advantage in making batteries and EVs. There is also the change in technology which will reduce car parts from almost 2000 to only 200 and with a resultant decline in the amount of maintenance required. This implies that a lot of jobs will be lost in the automobile supply chain particularly amongst car part makers as well as dealerships.

The UK is vulnerable to both these changes as Brexit will mean that investment in new technologies may not make sense as key companies would like to build their supply chain in the European heartland which is not encumbered by custom duties and regulations. Also, the British market may not be big enough for many companies to set up large battery plants until the market becomes quite big. Even though the UK has a certain advantage in battery R&D, the absence of a local manufacturing ecosystem means that it would not be tough for the UK to maintain or even gain on that advantage for too long. Germany with its world-beating automobile industry is already getting a Tesla Gigafactory in Berlin and is all set to attract more and more investments crowding out the UK automobile industry.

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