An Automaker Has a Stark Warning for the U.K. Car Industry

A distress flare has gone up from the beleaguered British car manufacturing industry. Stellantis, the company behind brands like Peugeot, Fiat and Vauxhall vehicles, has warned a Parliamentary committee that automakers with plants in Britain will struggle to compete in coming years amid the switch to electric vehicles and new post-Brexit export requirements.

The company implied that it might shut down its two plants in Britain, where it employs more than 5,000 people.

“If the cost of E.V. manufacturing becomes uncompetitive and unsustainable, operations will close,” the company warned in a five-page document published this week.

These words resonated across the country on Wednesday, partly because Stellantis plans to play an important role in the electrification of the British auto industry. The company is retooling it plants at Ellesmere Port, near Liverpool, to produce small electric vans. Stellantis is already the largest producer in Britain of the popular Vauxhall commercial vans. The vans, used for e-commerce deliveries, are manufactured at a factory in Luton, north of London.

The comments added to worries that car making was in a deep downward spiral in a nation that once produced iconic vehicles like the Jaguar XK-E and the Morris Minor.

The number of cars produced in Britain has fallen sharply, to 775,000 last year from a peak of more than 1.7 million in 2016, the year voters approved a referendum to leave the European Union. Production did, however, increase by 6 percent in the first quarter of 2023 from a year earlier, as parts problems eased.

Yet vehicle manufacturing remains an important industry in Britain, employing 182,000 people and making up 10 percent of Britain’s goods exports, according to the Society of Motor Manufacturers and Traders, an industry group.

Britain’s exit from the European Union has created doubts for carmakers considering investing in the country. Eight out of 10 cars made in Britain are exported, with more than half shipped to E.U. countries, and British exporters must now navigate trade rules to sell to the bloc.

The shift to electric vehicles may be even more threatening, analysts say, because it is forcing global carmakers to make major decisions about where to place their bets for the future.

“The real transition is the transition to electric vehicles,” said Peter Wells, an auto specialist at Cardiff Business School.

So far, Britain has not succeeded in attracting the multibillion-dollar investments it needs for building giant factories to make the batteries that account for much of the cost of electric vehicles.

The bankruptcy of a battery start-up called Britishvolt in January accentuated that shortcoming and, so far, no replacement appears to have been found.

“If that stays as the status quo I would contend that in 10 years the U.K. would largely lose its vehicle manufacturing capability,” said Andy Palmer, a former chief operating officer of Nissan.

Mr. Palmer said that post-Brexit Britain finds itself caught between the United States, which through the Inflation Reduction Act is offering large tax incentives to encourage battery manufacturers, and the European Union, which will pull out all the stops to compete with the United States.

“That puts us in competition with the both the E.U. and the U.S.” Mr. Palmer said.

The British government says that it realizes the importance of the car industry and is working on assuring its future.

“We are very focused on making sure” Britain has electric vehicle manufacturing, Jeremy Hunt, the chancellor of the Exchequer, told a business audience in London on Wednesday.

What specifically worries Stellantis and other makers is an import regulation that falls under the so-called Rules of Origin and is set to take effect next year. Under the rule, at least 45 percent of the value of the materials of cars exported to Europe must come from either Britain or the European Union if the makers want to avoid paying duties of 10 percent — a stiff penalty in the highly competitive car business.

Stellantis says that it cannot meet these standards because of rising costs for raw materials among other issues. It says it wants the British government to negotiate a postponement of the rules until 2027.

The concerns are not limited to Britain. Stellantis forecast that there will not be enough battery supplies in Britain or Europe to meet the ambitious targets of governments for shifting to electric vehicles over the next few years.

Mr. Wells said the situation put a damper on the auto industry across Europe. “How,” he asked, “can Europe continue to supply into a booming electric vehicle market while simultaneously insisting on these local content rules?”

Eshe Nelson contributed reporting.