Tata Group’s £4 billion (US$5.2 billion) investment in a British battery factory will not only help Britain bridge the gap in electric vehicles with other European nations but also give a boost to Prime Minister Rishi Sunak’s political fortunes, analysts say.
The Indian owner of carmaker Jaguar Land Rover announced on Wednesday that it would build a 40-gigawatt battery cell factory in Britain, which according to research institute the Faraday Institution will be enough to meet nearly half the country’s battery production needs – an estimated 100GWh – by 2030.
“The United Kingdom was facing the dire possibility that it would miss out on the EV market altogether as it is way behind the rest of Europe in positioning itself for the transfer away from vehicles propelled by internal combustion engines,” said V. (Paddy) Padmanabhan, a marketing professor at international business school INSEAD.
“Having a domestic battery plant is extremely important to enable domestic EV manufacturing as they are hard to transport across distances.”
Britain’s hopes of building a home-grown EV industry were given a jolt when start-up firm Britishvolt collapsed earlier this year following dismal sales throughout the pandemic.
“The only remaining player is a Chinese company [Envision group] that makes batteries for the Nissan plant in Sunderland. If all goes well, the Tata plant will be bigger than the Chinese supplier and could easily support the manufacture of hundreds of thousands of EVs in Britain,” Padmanabhan said.
Britain has lagged behind its European counterparts in electric-vehicle batteries, with more than 30 gigafactories either planned or already under construction across the continent. Washington’s offer of hundreds of billions of dollars in subsidies for green industries setting up shop in the United States also put London’s battery plans in jeopardy.
Boost for Sunak
Tata’s new factory represents the biggest single investment Britain has made in EV battery production. It’s not known how much financial support the UK government offered Tata Group, as Whitehall has declined to disclose the figures, but the BBC reported last week that it would amount to hundreds of millions of pounds.
Spain was also keen to have a new gigafactory and had been lobbying Tata for the project.
“If the Tatas had decided to locate their plant in Spain as opposed to the UK, it would have made for terrible headlines in the UK newspapers,” said Padmanabhan, adding that it would have also dented the ruling Conservative Party’s prospects because it championed Brexit – Britain’s exit from the European Union.
“This will allow the prime minister to claim that his government is committed to creating good jobs and putting in place all the things needed to ensure the UK can support a thriving domestic automobile industry,” Padmanabhan said.
The new plant is expected to create 4,000 jobs, according to the British government.
Earlier in January, Sunak had outlined five priorities for his tenure including growing the economy and creating better jobs, as well as halving inflation this year.
The Tata investment into EV batteries coupled with an unexpected drop in inflation to 7.9 per cent in June is likely to solidify Sunak’s political pitch around economic competence ahead of next year’s general elections.
Although the Tatas have not disclosed the location of the battery plant, it is expected to be in Somerset in southwest England, while the Jaguar Land Rover factories are based near Birmingham in central England.
On Thursday, the Conservative Party lost its seat in Somerset and Frome to the Liberal Democrats in a by-election, but that political setback is unlikely to affect the Tata project.
Analysts say Tata is moving into batteries now to give the group time to prepare for Britain’s planned ban of all new petrol and diesel cars from 2030, as well as post-Brexit rules that will require carmakers from 2024 to source more EV components locally to avoid tariffs.
According to the new UK-EU trade rules, carmakers can benefit from zero tariffs only if 45 per cent of EV parts – by value – and 60 per cent of the battery components originate from either the EU or Britain.
“Given that Jaguar Land Rover represents close to 25 per cent of UK-manufactured cars, it will obviously be a major beneficiary of this plant,” said Ashish Bagadia, a partner for corporate finance and investment banking at BDO India.
The move will also help Jaguar Land Rover cars, which are known for fuel-driven premium vehicles, align with future markets, analysts say.
“It is not a matter of choice any more. In five to seven years, electric cars will probably comprise 50 to 60 per cent of the EU’s car market,” said Puneet Gupta, S&P Global – director mobility. “By 2035, it will all be electric.”
One of Jaguar Land Rover’s top markets is China, but analysts say the investment in a battery plant in Britain is in line with the trend of manufacturers looking to prioritise and consolidate their home advantage.
“The first thing that anyone is doing today is to retain your share in the local market,” said Gupta, adding that “de-risking” has become a cornerstone for manufacturers.
Source:- South China Morning Post