Leading manufacturers are aware that electric vehicles pose a threat to old business models
The American automotive firm Delphi announced the closure of its factory in the rural market town of Sudbury in Suffolk earlier this month, but the news received little coverage beyond regional media outlets reporting on the loss of 520 jobs at the site by 2020.
Having grown up in the town, I am aware of what the closure of one of its largest employers means for the local community. But the closure is significant at a national level, too. It highlights the wider state of the UK car industry, possibly stalling at the crossroads.
Investment in the sector is falling. This is in part due to the uncertainty that is effecting the whole business community as we approach Brexit. But it is also because the leading manufacturers are now all too aware that the rise of electric vehicles (EVs) poses a threat to their traditional business model.
The decision to close the Sudbury site was made, according to Delphi, as a "result of predicted falls in the demand for diesel vehicles".
Following VW’s 2015 emissions testing scandal and growing concerns about air pollution, there has been a shift in political and consumer attitudes towards diesel cars.
Last month, sales of new diesels in the UK were 20 percent lower than July 2016. Car companies have responded by promoting new EVs and offering scrappage schemes for older, polluting cars, while city and national governments across Europe want bans on the sale and use of diesel cars.
EVs are forecast to make up 54 percent of global new car sales by 2040. Delphi itself already supplies equipment for EVs sold by companies such as Tesla, Ford and Chevrolet, and is planning to expand its operations.
Delphi’s plant in Sudbury produces components for commercial diesel vehicles. More than 95 percent of UK commercial vehicles remain diesel-powered, but companies are beginning to move to EVs.
This summer big household names such as Royal Mail, British Gas, the Metropolitan Police, and Harrods have all unveiled plans to increase their use of electric vans in London.
Across the rest of the UK, too, local authorities, universities, retailers, and even some airports are increasing their use of EVs. This means the long-term demand for the products made at Sudbury will fall, suggesting the plant’s future viability was always going to be uncertain.
The changing fortunes of diesel aside, Delphi’s decision to close the factory ultimately reflects an increasingly obvious trend of car companies cutting UK investment ahead of the UK’s exit from the EU, expected in 2019.
Investment fell to £322million in the first half of this year, putting the sector on course for investment of less than half the total of 2016. And the investment last year was more than £1bn less than the £2.5bn spent by the sector in 2015.
Car production in the UK relies on the unrestricted movement of materials and parts between multiple EU countries, with stages of production of a single vehicle occurring across different factories.
Falling sales of diesel vehicles
Components assembled at Delphi’s Gloucestershire factory, for example, are shipped to Germany for heat-treatment, before returning to the UK to be installed in lorries, with the finished vehicles then re-shipped to the continent to be sold.
Supply chains and production lines rely on rapid shipping of parts between countries, and typically plants hold only a few hours’ worth of components in stock.
The government’s intention to leave both the EU and the Customs Union will likely result in future customs checks, tariffs and delays at borders which will jeopardise the profitability of UK car plants. The falling value of the pound compounds this further
But Delphi’s assertion that falling sales of diesel vehicles is the reason behind closing its factory in Sudbury should also serve as a signal for the UK government on its industrial policy.
The automotive sector is one of the UK’s largest manufacturing industry employers, with 169,000 people directly employed in final-stage manufacturing, and another 645,000 across the wider automotive industry.
Faced with a decision over the next few years on the future development of EVs as we move away from diesel and petrol cars, the industry will either begin to transform – maintaining or even growing job numbers – or decline, losing many of these jobs in the process.
The government should seek to maintain the UK’s competitive advantage in the car sector by supporting the development of EVs through its industrial strategy, and use low carbon technologies as a driver of wider industrial growth.
It has signalled support for EVs, but there is a lack of firm policy to encourage investment, and to incentivise consumers to buy EVs.
Doing so would preserve the UK’s well-established and highly skilled automotive manufacturing sector, as well as addressing pollution that is blighting cities across the UK.
The continued absence of such policies will lead to further job losses in the sector far beyond Sudbury. Of course, this government – preoccupied with Brexit – may not act until the closure of large plants owned by the major car brands grabs nationwide headlines, by which time the damage to the industry may be irreversible.
Joseph Dutton is a policy advisor for the global climate change think tank E3G. He tweets at @JDuttonUK.