To protect supply chains, we must invest in innovation
Our world view has changed. Thirty years of faith in globalisation has been shaken by COVID, the chip shortage, and the war in the Ukraine.
Worldwide, corporations are re-evaluating their supply chain risk management. Apple, which has been so successful and so reliant on Chinese manufacturers, is significantly expanding production in India and Vietnam. Expect the rest of the world to follow in diversifying supply routes. Earlier this year, a shortage of wiring harnesses from Ukraine briefly eclipsed the chip shortage as Volkswagen’s biggest problem and delayed the launch of the ID.5; it is now sourcing them from other locations. The chip shortage itself needs no introduction, and it is part of a wider shortage of components and raw materials, which have contributed to a significant automotive production decline and the broader effects of which are being felt well beyond the automotive industry.
Thirty years of faith in globalisation has been shaken by COVID, the chip shortage, and the war in the Ukraine
Following this turmoil, multi-sourcing and deglobalisation have become buzzwords. In the UK, Brexit had already caused a re-evaluation of supply chains. For UK cars to be sold in the EU, most of the value has to come from the UK or the EU—this threshold is called ‘maxNOM’ (maximum non-originating material”). The UK-EU trade deal sets this threshold, which is currently at 60%; it reduces to 55% in 2024, and again to 45% in 2027. This greater need for domestic production is driving investment in companies like Britishvolt, which is building a 30GWh battery Gigaplant in Northumberland. Britishvolt is receiving funding from the UK’s Automotive Transformation Fund, which is also supporting Johnson Matthey’s new hydrogen Gigafactory, Pensana’s new magnet refinery and many others. The government has also released a critical minerals strategy, the first element of which is to accelerate the UK’s own domestic capabilities.
These are all exciting and fantastic news for the UK’s automotive industry. But we must also look to the future; the best way to secure UK supply chains for the next generation of technology is by innovating and supporting innovation now.
It is not enough just to build facilities for this generation of batteries; current solutions will soon be outdated. We need to be leading the development and manufacture of solid state batteries and other technologies that have not been invented yet. There are huge possibilities with hydrogen; we need to support this—and built the infrastructure necessary to support development and innovation. Autonomous will change not just how we drive to the supermarket, but how we build cities and how we use our time. We need to encourage innovation here too, and build a regulatory framework that supports it.
The Government has repeatedly stated its ambition to make the UK a science superpower. The House of Lords’ Science and Technology Committee reported on its progress on 4 August 2022. Whilst the report said that the rhetoric is laudable, it criticised the lack of an overarching plan, the many layers of bureaucracy, unclear targets, lack of communication and absence of sustained focus or implementation. As that report says, innovation is a long-term endeavour. With the right support, innovation in the UK in future automotive technology can bring fantastic rewards. With nothing but slogans, we will miss some generational opportunities.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Giles Parsons is Partner at Browne Jacobson
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