Fears for British car production unless deal struck with EU despite best May in four years

Continued tariff-free trade between the European Union and the UK could be at risk from next year, unless a deal can be reached. Obstacles to trade could halt progress made by the industry made this year, driven by exports.

Promising growth in British car production could be cut short unless a deal is reached with the European Union (EU) in the coming months, an industry body has warned.

Britain recorded the best May for car production in four years, according to data from the Society of Motor Manufacturers and Traders (SMMT).

But this figure was largely driven by exports to the EU.

The vast majority (79.5%) of the nearly 80,000 (79,406) cars produced in the UK in May 2023 were for export.

Domestic demand accounted for just 16,188 vehicles despite growing by 45%. That growth in demand in the UK was nearly double the 23% rise in exports.

However, of the exports, more than half (56%) of the cars were made for Europe, with less than a third (28%) of exports going to the next largest markets: the United States, China, Japan and Australia.

The dominance of export in British car-making has led the SMMT to call for continued tariff-free trade between the European Union and the UK, particularly for electric vehicles (EVs).

The organisation says EVs will face tougher rules of origin requirements – regulations that limit the value of material from a different country – from January unless the UK and EU can agree to have them postponed.

While production was up 27% from May 2022, an increase of 16,762 vehicles, it’s still 32% below the output of May 2019.

The car manufacturing sector has grappled with tough economic conditions in the form of slow economic growth, high inflation and rising rates.

There was an especially large growth in hybrid electric, plug-in hybrid and EV volumes – up 95% in May to 27,636 units, equivalent to 35% of all cars made in the month.

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The sale of new petrol and diesel vehicles is banned from 2030 in an effort to reduce CO2 emissions.

This transition has been cast into doubt by Logistics UK, which has freight companies and suppliers as members. It said efforts to decarbonise were being hampered by high costs, a lack of Treasury support and an inadequate public charging network, meaning the transition to EVs can’t continue without state aid.

There are currently no battery factories in the UK, though Tata, the owner of the UK’s largest carmaker, Jaguar Land Rover, was reported to be building a gigafactory in Somerset.