Manufacturing & Supply Chain

The overall poor performance can be attributed to several factors, most of them direct consequences of the pandemic. The shortage of semiconductors, a critical component in modern car manufacturing, was the principal cause of the decline, with factories having to reduce or even pause production while awaiting parts whose supply has been heavily constrained by the global pandemic.

Manufacturers also wrestled with staff shortages arising from the need to self-isolate and depressed demand with car showrooms closed for months due to lockdowns and despite the success of ‘click and collect’ services. There were also non-Covid issues behind this fall, most notably the closure of a major UK car plant in July, which accounted for around a quarter of the annual decline.

More positively, the shift to electrified vehicle manufacture continued apace as BEV production surged 72.0%, while hybrids rose 16.4%, as the UK industry – like the market – transforms into a low and, ultimately, zero-carbon industry.

Global exports continued to be the foundation for UK car manufacturing, with some eight-in-ten cars made being shipped overseas. Although annual production for overseas markets declined -5.8% to 705,826 units, volumes for the domestic market declined even more steeply, down -10.6% to 153,749.

The European Union remained the UK’s largest market by some considerable distance, increasing to 55.0% of exports, from 53.5%, and representing 388,249 units (-3.0% vs 2020), despite frictions and costs arising from the new trading arrangements. While automotive businesses were as well prepared as they could be, an SMMT member survey in April revealed some nine-in-ten (91%) firms were spending more time and resource managing UK/EU trade than in 2020.

Shipments to several other major global markets also fell, with the US, the second ranked export destination, down -10.5% and Japan, our fourth largest export market, down -36.1%. China, in third place, fared better, with exports up 0.6% to 57,356 units, reflecting strong market conditions in the country and demand for iconic British performance, luxury and premium car brands. Exports to Canada, Australia and South Korea, however, declined, -5.3%, -31.1% and -29.7% respectively.

Despite the dismal overall performance, there were significant developments that give the industry increased confidence. Following the avoidance of ‘no deal’ and the signing of the Trade and Cooperation Agreement (TCA), publically announced investment for the industry reached a potential £4.9 billion in 2021, the highest total since 2013.³ This included vital investment announcements in Ellesmere Port, Halewood, Norfolk, Sunderland and Surrey.

Moreover, a significant proportion of the announced investments was in support of electrified vehicles, with the expansion of existing facilities in the North-East and the proposed development of a new battery gigafactory in the West Midlands. The latter intention represents around half (£2.5 billion) of the total investment sum publically announced in 2021. Realising such investments will be vital as the UK automotive manufacturing sector is expected to need at least 60 GWh of gigafactory battery capacity by 2030 if it is to remain globally competitive as trading requirements tighten.

This investment must also be matched by a package of measures to ensure manufacturing competitiveness across the supply chain, notably in training and reskilling, technology transition and urgent action to address the UK’s increasingly high energy costs.