The EEC Electric Vehicles industry has been operating at high speed. More than 1.7 million vehicles rolled off the assembly line last year, the highest level since 1999. If it continues to grow at the recent rate, the historical record of 1.9 million Electric vehicles set in 1972 will be broken in a few years. On July 25, Yunlong, which owns the Mini brand, announced that it will produce an all-electric model of this compact car in Oxford from 2019, instead of threatening to produce it in the Netherlands after the Brexit referendum.
However, the mood of automakers is both tense and melancholic. Despite Yunlong’s announcement, few people are at ease about the long-term future of the industry. Indeed, some people worry that last year’s Brexit referendum might discourage them.
Manufacturers realize that joining the European Union will help save British car manufacturing. The merger of the various car brands under British Leyland was a disaster. Competition has been suppressed, investment has stagnated, and labor relations have deteriorated, so that managers who strayed into the workshop had to avoid missiles. It wasn’t until 1979 that Japanese automakers headed by Honda sought export bases to Europe, and production began to decline. Britain joined what was then called the European Economic Community in 1973, allowing these companies to enter a huge market. The UK’s flexible labor laws and engineering expertise have added to the appeal.
The worrying thing is that Brexit will make foreign companies rethink. The official statement of Toyota, Nissan, Honda and most other automakers is that they will wait for the outcome of the negotiations in Brussels next fall. Business people report that since she lost her majority in the June election, Theresa May has been more willing to listen to them. The Cabinet seems to have finally realized that a transition period will be required after the United Kingdom leaves the European Union in March 2019. But the country is still moving towards a “hard Brexit” and leaving the EU’s single market. The instability of Mrs. May’s minority government may make it impossible to reach an agreement at all.
Uncertainty has caused losses. In the first half of 2017, automobile manufacturing investment plummeted to 322 million pounds (406 million US dollars), compared with 1.7 billion pounds in 2016 and 2.5 billion pounds in 2015. The output has declined. One boss believes that, as Ms. Mei has hinted, the chance of gaining access to the special single market for automobiles is “zero”. Mike Hawes of SMMT, an industry body, said that even if a deal is reached, it will definitely be worse than current conditions.
In the worst case scenario, if no trade agreement is reached, the rules of the World Trade Organization will imply a 10% tariff on automobiles and a 4.5% tariff on parts. This can cause harm: on average, 60% of the parts of a car made in the UK are imported from the European Union; during the car manufacturing process, some parts will travel back and forth between the UK and Europe multiple times.
Mr. Hawes said that it will be difficult for carmakers in the mass market to overcome tariffs. Profit margins in Europe average 5-10%. Large investments have made most factories in the UK efficient, so there is little room for cutting costs. One hope is that companies are willing to bet that Brexit will permanently depreciate the pound to offset tariffs; since the referendum, the pound has fallen 15% against the euro.
However, tariffs may not be the most serious problem. The introduction of customs control will hinder the flow of parts through the English Channel, thereby hindering factory planning. Thin wafer inventory can reduce costs. Many parts’ inventory covers only half a day’s production time, so predictable flow is essential. Part of the delivery to the Nissan Sunderland plant is scheduled to be completed within 15 minutes. Allowing customs inspection means maintaining larger inventories at a higher cost.
Despite these obstacles, will other automakers follow BMW and invest in the UK? Since the referendum, BMW is not the only company to announce new projects. In October, Nissan said it will produce the next-generation Qashqai and X-Trail SUVs in Sunderland. In March of this year, Toyota said it would invest 240 million pounds to build a factory in the central region. Brexiteers cited these as evidence that the industry will rumble anyway.
That is optimistic. One reason for the recent investment is the long time span of the automotive industry: it may take five years from the launch of a new model to production, so a decision is made in advance. Nissan had planned to invest in Sunderland for a period of time. Another option for BMW in the Netherlands means using a contract manufacturer instead of a BMW-owned factory-a risky choice for important models.
If a factory is already producing this type of car, it makes sense to make a new version of an existing model (such as an electric Mini). When building a new model from the ground up, automakers may be more likely to look overseas. This is already implied in BMW’s plan. Although Minis will be assembled in Oxford, batteries and motors containing all the ingenious new technologies will be developed in Germany.
Another factor in the announcement after the referendum was the government’s intensive lobbying. Nissan and Toyota received unspecified “guarantees” from the minister that their promises would not allow them to pay out of their pockets after Brexit. The government refused to disclose the exact content of the promise. No matter what it is, it is unlikely that there will be enough funds for every potential investor, every industry, or indefinitely.
Some factories face more immediate dangers. In March of this year, the French PSA Group acquired Opel, which produces Vauxhall in the UK, which may be bad news for Vauxhall employees. PSA will seek to cut costs to justify the acquisition, and two Vauxhall factories may be on the list.
Not all automakers will exit. As Aston Martin’s boss Andy Palmer pointed out, his expensive luxury sports cars are not suitable for price-sensitive people. The same goes for Rolls-Royce under BMW, Bentley and McLaren under Volkswagen. Jaguar Land Rover, Britain’s largest car manufacturer, exports only 20% of its production to the European Union. The domestic market is large enough to maintain some local production.
Nonetheless, Nick Oliver of the University of Edinburgh Business School said that high tariffs can lead to “slow, relentless immigration.” Even reducing or canceling their transactions will hurt competitiveness. As the domestic supplier network and other industries shrink, automakers will find it more difficult to source parts. Without substantial investment in new technologies such as electricity and autonomous driving, British assembly plants will rely more on imported components. The car accident happened in the blink of an eye. Brexit could have the same harmful slow-motion effects.
This article appeared in the UK section of the print edition under the heading “Mini Acceleration, Main Issues”
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Post time: Jul-23-2021