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By Matthew Brooker
British government officials describe Tata Group’s decision to build an electric-car battery factory in the UK as a “major vote of confidence” and a huge boost for the country’s auto industry, saying it will create thousands of jobs and help drive economic growth. For once, the hype may be partly justified.
The significance of the £4 billion ($5.2 billion) project shouldn’t be underestimated, though it is more of a lifeline for domestic carmakers rather than their crowning glory. This was the deal the UK couldn’t afford to lose. Much local media coverage focused on the financial incentives that the government must have offered to win the Indian conglomerate’s favor, which some reports put at £500 million — a figure that may turn out to be conservative once the full extent of support is known. Is it worth it? That’s a question of values and priorities. If Britain wants to have a car industry, the answer is yes.
The country plans to move fully to electric vehicles in 2030, when sales of new petrol and diesel cars will end. The battery pack is the single most expensive part of an EV, accounting for 30% or more of the cost. If you can’t manufacture batteries, you won’t have much of a domestic industry. As of last year, the UK was projected to have the ninth-largest battery output in Europe by 2030, with a mere 7% of the planned capacity in Germany, the continent’s biggest auto producer. In other words, it was heading for the status of an also-ran.
Even the 40 gigawatt-hours to be added by the Tata plant would raise Britain only to sixth position, just ahead of Norway, based on 2022 figures from the Faraday Institution, a battery research group. So to say that the project puts the UK in the “fast lane” for EV production, as Energy Security Secretary Grant Shapps told the BBC, looks a little hyperbolic. Still, it gets the country into the race. Car production is a highly integrated multinational business and, like most manufacturing, it thrives on clusters; proximity to suppliers is key. Getting one project of reasonable scale on board raises the likelihood that other companies — including vehicle and parts makers — will follow.
So the importance of the Tata gigafactory extends well beyond the immediate jobs and investment it will generate. Failure to secure this project would have put a real question mark over the long-term viability of the British car industry, which has already shrunk by half in output terms since the 2016 vote to leave the European Union. If the government couldn’t land this deal, what hope could it have elsewhere? Elon Musk’s Tesla Inc. already turned down the UK, saying in 2019 that Brexit had made it too risky to site a gigafactory in the country.
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Tata, meanwhile, is the owner of Jaguar Land Rover: a storied British marque and the country’s biggest car manufacturer. This was always going to be the government’s best shot at success. One can expect that some serious horse-trading went on, with officials deploying all their tools of pressure and persuasion to keep production of such a critical next-generation technology at home and close to what will be its biggest user. This is a golden period to be a multinational manufacturing company shopping for overseas investment opportunities: We are in a renewed era of industrial subsidies, and those with money to spend can play governments against each other in search of the best terms.
Shapps said his first involvement with the project had been a call with Tata nine months ago, when the factory was headed for Spain. He said the decision had been “hard won,” and that the Tata gigafactory, besides supplying JLR, will have capacity to produce up to half the EV batteries the UK will need by 2030.
For the Conservative government, a happy side-effect of the Tata triumph is that it will help to overshadow unpleasant memories of the collapse earlier this year of Britishvolt Ltd. Former Prime Minister Boris Johnson once spoke in similarly grandiose terms of that project, which was far more speculative and went under without ever producing a viable battery. The current administration will be confident that JLR’s owners are altogether more serious people.
Tata’s decision was announced in the same week that the UK inflation rate declined to its lowest in 15 months, marking two rare pieces of positive news for an economy that’s been sputtering. Firing on two cylinders is better than none at all.
Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper
