UK Prime Minister Boris Johnson was happy to announce the Nissan battery plant investment in Sunderland, and the deal is important for the country to help it keep pace with Europe in electric vehicle production. (Photo by Jeff J Mitchell/Pool/AFP via Getty Images)

It is welcome news for the UK auto industry that Nissan and its battery specialist partner are to invest in more battery production – as well as a new electric crossover – at its UK production hub in Sunderland. It can be rightly viewed as a very positive step at the UK’s largest car-producing plant, particularly as the global auto industry contemplates transformative change ahead. However, there is much more investment needed if the supply chain in the UK is going to support a viable car industry capable of building one million electric vehicles (EVs) a year by the end of the decade.

Looking at the Nissan Sunderland announcement, there is also an important backdrop in terms of UK-specific factors that undoubtedly played a part in the decision.

The UK’s energy transition

For the automotive industry, it is very clear that we are seeing a transformative energy transition from the prevalence of the internal combustion engine (ICE) to electrified and battery electric vehicles (BEVs). All vehicle manufacturers must address that fundamental shift over the next decade and that means both introducing new EVs and ensuring supply chain capabilities for key components such as batteries.

High-value lithium-ion batteries are, by their nature, heavy and vehicle manufacturers want to avoid long-distance logistics, preferring to manufacture the battery packs close to the vehicle manufacturing and final assembly plant.

However, there are also important UK-specific factors at work in Nissan’s decision. The Nissan plant in Sunderland is heavily geared to supplying customers in the EU. From 2024, under the terms of the UK-EU’s Brexit trade deal struck at the end of 2020, rules of origin requirements are raised and they get ratcheted up further thereafter. That means to qualify for tariff-free circulation in the EU, local content (UK and EU-sourced components) needs to be higher than it currently is on EVs made by Nissan in the UK. Nissan will prefer to meet that requirement with UK-made batteries rather than the alternative of long-distance imports from potential suppliers on the continent.

How much support did the UK government give?

How much support from the UK government has Nissan factored in? That is difficult to measure right now (and clearly a sensitive subject for both Nissan and UK government ministers), but the UK has set an ambitious target for decarbonising its economy (with no pure ICE vehicles on sale from 2030) and the UK government has stressed the need for ‘levelling up’ the economic position of regions across the UK. Nissan’s Sunderland plant is a core economic asset in the relatively underprivileged North East of England. There can be little doubt that London will give a huge welcome for this Nissan announcement and will have wanted to do anything it could to get that investment over the line. With EU rules on state aid becoming less important for a non-member state (albeit still subject to Brussels’ concerns over the UK’s apparently more freewheeling attitude), Nissan has been in a sweet spot for any negotiations on support measures.

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However, as the industry transitions to BEVs from today’s low market penetration (currently less than 10% of new car sales are BEVs in the UK) there is still a long way to go for the country’s automotive industry in terms of being globally competitive and having sufficient supply chain manufacturing capacity – especially in batteries – to meet the vehicle manufacturers’ much higher-volume future needs. The Nissan announcement is a start. Make no mistake though, the UK is faced with very serious competition from future high-volume factories across the English Channel.

The stakes – in terms of economic output and jobs – especially as more automation comes in at future smart factories in the latter part of this decade (with ICE technology-based jobs being lost), are very high. Nissan’s latest investment, though, does put the UK’s automotive sector firmly into the competition for EV factories and the all-important supply chains (especially batteries and ‘gigafactories‘) that will play out in Europe in the 2020s.

This article originally appeared in Just Auto magazine.