UK: New Automotive Technology And Brexit

Last Updated: 11 September 2018
Article by Matt Hervey

This short guide highlights key areas requiring action by companies in the UK's automotive sector involved in the development of new technology. These include: access to funding (Horizon 2020; the European Investment Bank (EIB); the impact of Brexit on original equipment manufacturer (OEM) investments; financial sector contraction; and potential areas of government investment in the absence of state aid rules); access to skilled workers; the potential divergence in legal and regulatory frameworks, including the Digital Single Market and data protection issues; intellectual property; and technical standards.

Access to funding

The automotive sector has always invested in new technology and is estimated to have spent £12 billion on research and development between 2009 and 2015. The sector is increasingly committed to large investments to develop autonomous, connected and electrical vehicles and in experimenting with new models of shared ownership. Incumbents face existential threats from competition from electronics and internet companies and the pressure to be first to market with the winning "platform" for mobility as a service.

Brexit may impact UK companies' access to funding in at least the following ways.

UK companies may lose access to EU sources of funding

Horizon 2020 funding may be withdrawn from UK companies in the event of Brexit. The UK Government has announced its intention to guarantee such funding for UK companies and has set up a portal for applications. UK Companies involved in Horizon 2020 should check the details here.

Funding from the European Investment Bank is also in doubt. The EIB has historically made considerable investments in UK companies (for example supporting UK automotive companies develop low carbon technologies). There are already reports that the EIB's equity investments in the UK fell from 27% in 2016 to 8% in 2017 because of the uncertainty of Brexit. UK companies should look for other sources of funding or consider creating presences within the EU to continue to access EIB funding.

Impact on investment decisions by carmakers

New tariffs on automotive components may lead carmakers to move manufacture away from the UK and to seek new local suppliers. The threat of such tariffs itself may divert carmaker's investment in the UK, which appears to have halved in the year to date. The UK Government has sought to reassure specific carmakers and to increase investment in the automotive sector with the Automotive Sector Deal announced in January 2018, including targeted investment in supply chain competiveness, low carbon vehicles, batteries and connected and autonomous vehicles. The UK Government intends to create a positive regulatory environment for key automotive R&D. It has produced guidance, for example for autonomous vehicle testing and for cybersecurity, and intends to implement of programme of "rolling" regulatory reform. These measures may help to keep R&D activity within the UK and UK companies should be aware of the sources of government funding and the advantages of the UK regulatory environment.

Potential contraction of the UK financial markets

A general contraction of the UK financial market may reduce the availability of funding.

Removal of EU state aid rules

Should the UK no longer be subject to these rules, it may have greater freedom to make strategic investments in UK automotive companies and in the infrastructure needed to maximise the potential of autonomous, connected and electric cars, such as country-wide fast data connections, charging points and additional power generation. UK companies should prepare to seek such investment in this event.

Access to skilled workers

Automotive companies are already competing with other companies for skilled workers. Specialists in artificial intelligence (AI) are in particularly high demand across all sectors. The UK Government has strategic plans to invest in AI research based around UK centres of excellence, such as the Turing Institute. UK companies competing for graduates should built up ties with centres of excellence and consider funding research programmes. Brexit may worsen the competitive environment for skilled workers by dissuading EU citizens from studying and working in the UK, though immigration rules may be more encouraging for skilled rather than unskilled workers. UK companies will need to audit their employers to check their continuing right to be here and prepare for additional visa procedures for recruitment of overseas staff. See our general note on Brexit and employment.

Potential divergence in legal and regulatory frameworks

The UK Government's intention is that current EU law will continue to apply as at Brexit but may start to diverge over time. The UK Government's present position is that we would seek to maintain a common rule book with the EU on many issues. Such an approach would minimise the risk of substantive divergence, albeit there might be differences in the form of regulation. See our general note on Brexit and Regulation.

EU law includes provisions aimed at enabling the "digital single market" which will become more significant to the automotive sector if connected cars, mobility as a service, and in-car content and e-commerce consumption take off. The Commission's European AI Alliance is working on guidelines for AI; these may affect the algorithms used by AVs. The UK Government has stated that the UK's Centre for Data Ethics and Innovation intends to continue to participate in the Alliance (paragraph 100). It is generally likely that for UK companies exporting to the EU, EU requirements will continue to be relevant. See, for example, our insight on the need for continued compliance after Brexit with the EU General Data Protection Regulation. One practical concern is whether additional hurdles will be required for companies to move customer data between EU countries and the UK. This is a topic UK companies ought to watch.

Intellectual property

New technology should be protected and monetised through intellectual property. The rising importance of autonomy and mobility as a service are likely require revised IP strategies. These strategic decisions must also take account of Brexit. See our general note on Brexit and Intellectual Property in the automotive sector. For general guidance on the impact of autonomous and connected vehicles on IP in the automotive section, see our recent report.

Technical standards

UK companies can continue to be members of international standard-setting bodies, including the European Telecommunications Standards Institute (ETSI) which oversees many of the standards required for connectivity. It is unclear whether UK companies will be able to continue to participate in standard setting by European Committee for Standardization (CEN) and European Committee for Electrotechnical Standardization (CENLEC), which are involved in some relevant standard setting such as electric vehicles. In any case, UK companies will need to comply with applicable EU standards to the extent they sell into the EU.

The EU Commission continues to look at the licensing of "standard essential" patents from a Competition Law perspective. This is an area of increasing importance to the automotive sector and one that has seen intense lobbying. In the event of Brexit, the UK Government will no longer have any formal say in the direction of EU policy but UK companies that deal with the EU are likely, in practice, to be subject to EU Competition Law.

Please get in touch for detailed advice for UK companies working on new automotive technology, whether in preparation for Brexit or generally.

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