UK electric vehicle investment window closing fast – report

A report from the Green Finance Institute’s Coalition for the Decarbonisation of Road Transport (CDRT) illustrates how the UK can become a global player in electric vehicle (EV) batteries if billions of pounds are invested now to build a battery supply chain.

The report, Powering the Drive to Net Zero, highlights the opportunity for the UK to invest in the global demand for EV batteries, which are expected to underpin the future of road transport.

Furthermore, the report warns that there is a narrow window to seize this opportunity and significant barriers to investment must be overcome.

Lauren Pamma, programme director, CDRT, stated: “The global EV market is racing to scale up the battery supply chain. This demand means new opportunities for investment in the UK, but only if the barriers to realising these opportunities are removed. Cross-sector collaboration has been critical to identifying the solutions that will de-risk investment, and unlock the capital required to build the battery supply chain that will secure the future of the UK’s automotive industry.”

Mike Hawes, chief executive, society of motor manufacturers and traders (SMMT), added: “To ensure the UK remains globally competitive as an EV manufacturer we need urgent backing to help transition our supply chain, bolster retraining and skills programmes and, crucially, increase our domestic battery production capability.”

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EVs and financing the drive to net zero

Powering the Drive to Net Zero concludes that only the private sector can provide finance at the pace and scale needed to enable the transition to cleaner road transport.

At present, organisations across the battery supply chain find it hard to secure the high levels of funding needed to scale up because battery developments are often considered high risk. Banks and institutional investors are cautious about investing in an emerging sector, particularly when future revenues are not certain and offtake agreements to buy batteries have yet to be signed.

This means developers have to bridge what CDRT refers to as a funding “valley of death” as they seek to scale up, with challenges around securing investment that matches the risk profile.

The report finds that financial solutions, including de-risking mechanisms such as guarantees, along with supportive government policies, are essential to unlock the larger sums of capital needed to build battery supply chains.

It warns that failure to invest now risks seeing other countries capture this opportunity, because investment lead times and construction periods for battery facilities can extend to several years.

Investors stand to benefit from an orderly transition from internal combustion engine (ICE) to EV production as the revenues from one are substituted with revenues from the other. A successful transition will also present opportunities to invest in the infrastructure needed to recycle end-of-life batteries, reducing the need for virgin materials.

Richard Hill, head of automotive & manufacturing, NatWest, a CDRT member, stated: “The window of opportunity to secure investment into the UK is closing fast. Announcements about battery production investments and supply contracts are now time critical for the UK, and all stakeholders, including the finance industry, must collaborate at pace if the existing auto sector is to be maintained and new opportunities exploited.”

Only 5% of UK car manufacturing was battery EVs in 2020 but Advanced Propulsion Center (APC) estimates that this could grow to 34% by 2025 and 78% by 2030. Production of ICE vehicles is forecast to fall rapidly from 94% in 2020, to 61% in 2025 and just 5% in 2030 to serve a shrinking export market.

The UK’s position

The UK is well positioned to become a global player in the EV battery revolution. It has a strong automotive sector, with over 30 manufacturers building more than 70 models of vehicle, a highly competitive chemicals industry, and it is at the forefront of research and development into new low-carbon engine technologies.

APC research highlights the UK’s potential to compete globally in three key areas which could deliver combined market growth of £24 billion ($29.6 billion) by 2025:

• Batteries at £12 billion ($14.8 billion)
• Power electronics at £10 billion ($12.3 billion)
• Electric machines at £ billion ($2.5 billion)

Ian Constance, CEO, APC, said: “The UK battery supply chain presents a real opportunity. Our forecasts show that demand will reach over 90GWh by 2030 but delivering growth on this scale requires a healthy appetite to invest significant capital. To maximise green jobs and economic growth, gigafactories and their supporting supply chains are essential. The right balance of policy and support, as outlined in the CDRT report, is essential to secure investor confidence in the UK EV sector.”

The report has been released as the global car industry goes through rapid transition. Meeting global climate targets relies on phasing out ICE vehicles.

In the UK, where road transport accounts for around a quarter of UK greenhouse gas emissions, the sale of new ICE vehicles will end from 2030 and the shift to EVs is a key priority in the government’s Ten Point Plan for a Green Industrial Revolution.

The value of the transition from ICE to EV powertrains could benefit the UK economy by upwards of £24 billion by 2025, according to the government-funded Advanced Propulsion Centre.