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The road to electrification

Barclays’ Lee Collinson dives into the current trends impacting UK automotive businesses as they strive towards electrification.

Britain makes the switch

Businesses in manufacturing, transport and logistics are going electric as the UK strives to meet carbon emission reduction targets, and automotive manufacturing is a big part of this. There is a huge amount of activity to replace the infrastructure in our strategically important automotive industry, switching from an industry based on internal combustion engines (ICEs) to electric vehicles and powertrains.

Before the Covid-19 pandemic, Britain made 25% of Europe's vehicle engines, a sector worth about £2 billion a year that employs hundreds of thousands of people . And about 80% of that product is typically exported. The challenge is to retain all that value and activity and port it seamlessly into an electric vehicle industry and supply chain.

Electric (EV), hybrid electric and alternatively fuelled vehicles can be clubbed together into a group called AFVs. The proportion of the total “car parc” – the total number of vehicles manufactured in the UK in circulation – that are AFVs is rising by about four to five per cent annually1. In 2020, 18.8% of the car parc were AFVs and 81.2% petrol and diesel.

1Source: SMMT Motor Industry Facts 2020

Somewhere between 40% and 50% of the total value of an electric car is the battery, (Source: WMG), and it makes good business sense to have battery plants close to the EV assembly plant. Batteries are very heavy and not cost effective to transport over long distances. Also if supplies from abroad are delayed the production line stops, shown by the recent global shortage of semiconductors, forcing Jaguar Land Rover and MINI to pause production.

The gigafactory economy

Britain has a battery factory in Sunderland for Nissan’s LEAF car and British Volt intends to invest in a factory in Blyth in Northumberland. As the industry and the government know, a battery plant must be big to be economically viable. “Roughly nine gigawatt hours per year is the point at which battery manufacture reaches industrially competitive costs – that’s why they are called gigafactories” says Professor David Greenwood, automotive expert and CEO of WMG High Manufacturing Catapult. “Sparks Nevada, Tesla's gigafactory, is 25 gigawatt hours per year now. The UK’s battery manufacturing capacity is about two to four gigawatt hours per year, nowhere near that scale.”

This capacity has to ramp up, and soon.

Looking ahead, in its electric vehicle report “Delivering the Triple Bottom Line”, The Society of Motor Manufacturers and Traders (SMMT) estimates that if the UK manufactures up to two million battery electric vehicles a year by 2040, it would need a total annual battery production capacity of 120GWh – approximately eight gigafactories at the target size of 10-15GWh each. Britain is currently at just 2.5GWh with a further 13GWh in plan. By contrast, total European battery production capacity is forecast to be 1.2TWh a year by 2040.

Then there are the new rules of origin to consider. These are attached to the EU-UK Trade and Cooperation Agreement, and they do not differentiate between batteries made in the UK and batteries made in Europe. By 2027, if a company wants to sell a battery electric vehicle, tariff-free between the UK and Europe, the battery must be made in the UK or Europe, it cannot be imported. This means Britain is directly competing with Europe to build battery plants.

Which car firms are going electric?

All the automotive manufacturers are switching to hybrid, electric and AFV powertrains. In the UK, the high-volume examples are the Nissan LEAF, and Jaguar Land Rover (JLR) has the all-electric Jaguar i-pace. LEAF has been built in the UK for 10 years and has several years left to run. But Nissan has announced that it is taking electric into many more platforms, such as SUV crossovers, in the very near future. Will it allocate further electric vehicle models to the Sunderland plant?

In 2019 Jaguar I-Pace won the European Car of the Year award, the first Jaguar to win in the award’s 50-year history, against competition including BMW. Sales in the UK are strong but in fact the car is manufactured by Magna in Steyr, Austria. JLR said in March that it plans to be fully electrified for Jaguar by 2025 and Land Rover/Range Rover will be 60% electric by 2030. It faces challenges, though, as its Land Rover and Range Rover models do not electrify easily; some of these cars are plugin hybrids today but to move to all-electric with no lightweighting, the batteries would need to be very large, possibly too big to fit the car.

Other, smaller electric vehicle firms in the UK include the London Electric Vehicle Company, van and bus making start-up Arrival, Volta Trucks and Polestar. Lotus in April announced its latest model, Emira, will be its last ICE powered car. A £2 billion planned investment programme from parent Geely will move it into the electric “and digital” domains.

The supply chain for components

An all-electric vehicle has a completely different set of mechanical and electromechanical components to an ICE car. As well as batteries, EVs need electric drive motors, inverters, DC-DC converters and chargers. Many of these are clubbed into “power electronics” which are light and are easily sold and shipped internationally.

The value in the power electronics is not actually in the components or assembly, the value is in the intellectual properties in the design, and in one or two key components, like the silicon or silicon carbide semiconductor switches that sit in the heart of it.

Professor David Greenwood

CEO of WMG High Manufacturing Catapult

The rest of the physical product is in electronics, printed circuit boards, and casings typically sourced from Asia. The UK’s main contribution will be around intellectual property, and having the best design capability. The Compound Semiconductor Applications Catapult in Newport, Wales is trying to help industry build a domestic capability in the high value switching components.

Electric motors are heavier and mechanically more complex than power electronics. There is a move to try and bring electric motor manufacturing to the UK. A government-backed campaign called DER – Driving the Electric Revolution – is now running to sponsor R&D and manufacturing scale-up for electric motors.

UK automotive faces a multitude of challenges in the drive to electrification. All these electric vehicles will need a charging infrastructure that is fit for purpose. How this is being planned and rolled out will be the subject of a new blog soon.

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