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Fears that a major US subsidy scheme will hurt the UK automotive sector should serve as a “wake-up call” for Britain to increase its own state support, according to a leading UK car boss.
British car industry leaders believe that the U.K. May lose out on investment as businesses chase subsidies offered by the US Inflation Reduction Act. Andy Palmer, chairman of battery company InoBat and former chief executive of sportscar maker Aston Martin Lagonda, said the deflationary legislation “should be a wake-up call to the UK government that their investment incentives are not enough”.
US President Joe Biden signed the act in August, which contained major subsidies for technologies that will be crucial to the transition away from fossil fuels, including electric cars, batteries and renewable energy technologies such as solar panels and wind turbines. While the act is seen by many analysts as the most consequential piece of climate legislation in history, many of the subsidies apply only to products made in the US.
The UK government has joined the EU in criticizing the protectionist elements of the bill. UK International Trade Secretary Cammy Badenoch has written to the Biden administration with concerns.
The subsidies would “hurt multiple economies around the world and affect global supply chains in batteries, electric vehicles and widespread renewables”, Badenoch wrote in the first letter to US Trade Representative Catherine Tay. She also said UK businesses should be eligible for subsidies, “as the closest allies of the US”. The letter was first reported by the Financial Times.
It is understood Badenoch discussed the concerns in private meetings during a trip to the US last month, where she met Tai and the Commerce Secretary, Gina Raimondo, as well as members of Congress.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, a UK lobby group, said the industry was concerned because a fifth of its exports go to the US, its biggest customer outside the EU. Jaguar Land Rover, Britain’s biggest carmaker, sold about 91,000 cars in North America in its last fiscal year, out of a total of 376,000.
Hawes said the tax credits on offer for US-made electric vehicles meant the US would likely become “a focus for people looking to invest around the world”. If the EU responds with its own subsidies for green technology manufacturing that could further damage UK industry prospects.
“There is a fear that the two major global markets may favor locally produced vehicles,” he said. “Hopefully it doesn’t come to that.”
Palmer’s Innovate has said it wants to build a new gigafactory to produce electric car batteries in Europe and is choosing between potential sites in the UK or the EU. The amount of government support may be an important factor in that decision.
Palmer said Badenoch had “undoubtedly legitimate concerns” about the implications for the UK of the Inflationary Reduction Act, and echoed concerns that any EU response would not be matched by the UK.
“The UK is not competitive compared to Europe, and Europe is not competitive compared to the US and India,” he said.
Automotive companies have already acknowledged that inflationary pressures can alter investment decisions. Arrival, a startup trying to build electric vans, abruptly announced in October that it was abandoning plans to start production in the UK in favor of a factory in the US, saying tax credits under the Inflation Act were a key factor.
The decision to arrive comes in the context of a funding crunch and a brutal 97% share price sell-off over the past year that led to the resignation of its founder as chief executive. However, the deflationary law’s reference reflects the concerns of other carmakers and suppliers looking to invest globally.
Sam Lowe, partner at Flint Global, a UK trade consultancy, said: “We don’t have the fiscal preparedness to throw as much money as the US and the EU. Subsidies could see the UK lose the arms race.
Palmer said he feared the UK would miss out on “once-in-a-lifetime” investment decisions by carmakers and battery companies that would shape the industry for decades. “If you lose it you lose forever,” he said.
In the EU, Swedish battery company Northvolt has said it may delay Germany in favor of building a factory in the US.
The UK government has been contacted for comment.
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