The UK Prime Minister announced a 10-point plan for a green industrial revolution on 18 November as part of his build back better campaign with a view to (i) aiding the UK to achieve its commitment of reaching net zero carbon emissions by 2030; and (ii) encouraging economic recovery in the wake of the pandemic. We take a look at what this actually means for the UK's electric vehicle (EV) sector.
The UK will bring forward the ban on internal combustion engine (ICE) (i.e. petrol and diesel) cars and vans from 2040 to 2030 - 10 years earlier than initially planned, although 2035 had been mooted earlier in the year. (The ban on sales of plug-in hybrid cars (PHEVs) will remain at 2035). This brings the UK in line with Germany, Ireland and the Netherlands. It puts us ahead of France, which retains the less ambitious 2040 target. Only Norway has a more ambitious target of 2025.
As part of this, a support package of £2.8 billion will be made available to the UK car manufacturing industry to make this transition.
The world's largest car manufacturer, Volkswagen Group, has announced an investment of EUR 73 billion on electrification, hybrid powertrains and digital technology over the next five years. EUR 35 billion of this will be in fully electric vehicles, and EUR 11 billion on hybrid vehicles. VW Group isn't doing this because of the UK announcements (it was the first car manufacturer to sign up to the Paris Agreement and commit to carbon neutrality by 2050), but it shows a transition of the global car manufacturing industry to focussing on the development of EVs and looking for innovative strategies for making EVs affordable to the mass market.
One such strategy of VW's is their modular electric drive toolkit (MEB) project on which Addleshaw Goddard advised VW. VW Group will have 70 EV models for sale by 2030. 19 million of the 26 million EVs VW Group plan to have in circulation by 2030 will be based on the MEB platform. Not only does VW intend to maximise the use of the MEB platform within the group, it is open to selling the technology to competitors such as Ford who expect to produce an initial 600,000 EVs for the European market based on VWs MEB platform.
VW has invested £7 billion in its development of the MEB platform since its inception in 2016 - long before any UK Government ban on ICE vehicles. This sum dwarfs the £2.8 billion offered to UK manufacturers in the 10 point plan. The more the costs of developing such EV technology can be shared the more affordable it will become, and this will remove some of the current barriers perceived by consumers preventing more widespread uptake. By contrast, UK manufacturer, Jaguar Land Rover, reported in March this year that it is to invest £1 billion in its EV offering. Some way behind VW, JLR may certainly benefit from an injection of Government money to remain competitive with manufacturers in mainland Europe.
Chief Strategy Officer of trailblazing EV battery manufacturer, Britishvolt, Isobel Sheldon, commented:
'We welcome the news that pure internal combustion engine vehicles will be banned in the U.K. from 2030 and this is very much a leading position from Government in improving local air quality and reducing impact on the environment from transportation. We, as a country, must take this as a golden opportunity to ensure that our country is at the head of not only the development but also the manufacturing curve so that the U.K. has in place an effective manufacturing sector for electric vehicle batteries to protect and grow automotive manufacturing jobs and provide a much needed boost to our economy as we recover from the current health pandemic'
To accelerate the manufacturing of EVs across Europe, there needs to be an established supply chain of one of the fundamental components - a battery. Recognising a 'once in a generation opportunity' to establish a world-leading battery supply chain (in the country where the lithium battery was invented), the UK Prime Minister has announced the availability of up to £1 billion towards developing Gigafactories in the UK to manufacture EV batteries at scale. How the first £500m of this will be spent will be announced by Government in this Parliament.
Including the funding available for the EV battery industry in the build back better deal certainly is encouraging news for the likes of BritishVolt and recognises the need for UK industry to be built around future technologies. It will also stimulate investment in lithium mining in Cornwall, which would see the UK being home to the full end to end supply chain for lithium EV battery cells. This will help the UK to compete against the likes of Germany, where VW is investing around EUR 1 billion in battery technology in conjunction with its Swedish joint venture partner, Northvolt. VW boast that this is a continuation of an investment programme initiated back in 2015, so the UK has to catch-up (and hopefully overtake) quickly. As such the funds need to be available soon and be easily accessible for the right projects.
It is not clear, however, whether this funding is new money - and I would suggest it is not. Whilst it is not explicit on the face of any published documents, this funding happens to look like a repackaging of the Automotive Transformation Fund which ran a competition in September this year for companies to apply for a share of up to £1 billion for research & development and capital investment.
EV Charging Infrastructure
The Prime Minister has recognised that a ban on ICE vehicles alone is not enough to stimulate change. There must be a real alternative available, and for this we need to remove the perceived barriers to owning and driving an EV in the UK. The UK needs a reliable network of charging points for consumers to switch to EVs when deciding what cars to buy. Manufacturers need comfort that consumer demand for EVs is on the increase before they bring EV models to market.
An investment of £1.3 billion is said to be targeted at accelerating the roll out of EV charging infrastructure. Not only would this address the range anxiety perceived barrier to buying an EV, but also the fear of having to wait in line to be able to use a charger whilst you're on route. The funding will be available to both rapid charging technologies (for installation in service stations and on major roads) as well as the slower on-street charging in residential streets to aid the 30% of UK car owners who do not have access to off street parking/charging.
Bernd Osterloh, Chairman of the General Works Council for VW, emphasised the importance of a reliable charging infrastructure across Europe when he said "just as important as billion-euro budgets [for car manufacturers] are a common understanding of the transformation and adequate planning reliability. [.] As regards the latter, I am thinking in particular of [Government] and hot topics such as charging infrastructure and high-speed Internet. Volkswagen is fully committed to climate-friendly, highly networked mobility. But for this, we and our customers need a reliable environment."
It is not as simple as installing chargepoints across the country. As Osterloh remarks, we need to ensure the underlying power and data infrastructure is also rolled out to the desired locations. National Grid's Decarbonisation Director, Graeme Cooper, has confirmed no system-wide upgrade is required to meet the demand of a full national switch to EVs. Cooper reports that overall electricity demand has fallen 16% since 2002, and that would only increase demand by 10% and so is within the existing system's capability. However it is still possible that certain sections of the existing network may need to be upgraded to support the new demand in some areas of the country introduced by EVs. We need to be able to find solutions that work for the remote parts of the UK where the network is not as robust as central and urban areas. There is currently no detail around how this £1.3 billion is going to be used to deliver the infrastructure required.
Is this new money? In the March 2020 budget, the UK Government introduced the Rapid Charging Fund - a £500 million commitment for EV charging infrastructure, but the Spending Review published the week after the 10 Point Plan commits £950 million to support the rollout of rapid charging hubs at every service station on England's motorways and major A roads - nearly double the Rapid Charging Fund amount.
In addition to there being plenty of reliable charge points, consumers need comfort that their connection is compatible, and that the power is charged to the consumer in a transparent and fair way. This may mean introducing standard pricing across charge points as currently the prices levied are unregulated by the Electricity Act 1989, and vary greatly between charge point operators. The cost of charging at public charge points can be up to 10 times the cost of charging at home (and this doesn't even factor in the potential cost of parking while you charge). On top of this are overstay fees. These differ based on charging operator and location, but can be as costly as a £10 charge for occupying a charge space for longer than an hour (Genie Point charger, South East London), or 70p per minute beyond the point the car has fully charged (Tesla Supercharger at Bluewater shopping centre).
The 10-point plan fails to address any of these market inconsistencies, which will have a bearing on the ultimate popularity and take-up of EVs. However, the UK's Competition and Markets Authority has just published a market study of the electric vehicle charging market. One of its two themes looks at consumer experience, including the range of charging options and tariffs available and how easy it is to understand and compare them. So we expect the Government to act on the CMA's recommendations when it publishes its EV Charging Infrastructure Strategy next year.
It's widely accepted that we are at the start of a bell curve in EV uptake and that sales are about to take off. In October 2020, battery EV sales were 6% of all car sales and in the year to date, EVs (including hybrids) made up 35.7% of all new car sales.
There is industry-wide recognition that to encourage the adoption of EVs as part of the UK's plan to achieve Net Zero by 2050, there are multiple areas which need to develop and come together simultaneously. Vincent de Rul, Director of EV Solutions EdF commented in our recent Green Recovery report that "Development of new cars, batteries, distribution network operator capacity, charging - we need to bring all of these together to crack the EV rollout. That's hard to do, but there is certainly an appetite for it. Everyone has realised that they can't provide the solution on their own."
In combination, the UK Government's proposed measures may stimulate the uptake of EVs by UK consumers, but will it be enough? In time, car manufacturers may realise that to truly increase EV uptake they need to target the generations for whom owning their own car is an unnecessary expense. To do this, they need to consider new ownership models that are more accessible to younger generations in urban environments. It is increasingly uncommon to buy hard copies of music - streaming services far outsell other forms of music ownership. Many of us already pay monthly for the ownership and use of our mobile phones. Car clubs already offer access to vehicles for an hourly charge which includes fuel and insurance. Offering EVs to the market on pay-monthly subscriptions covering power, insurance, data, and ownership/rental payments may well increase the uptake of EVs enough to make a significant contribution to the UK getting ICE vehicles off the road and reaching the Net Zero target by 2050.
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