How Brexit and Beijing are Shaping the UK’s Transition to EVs

It was all smiles when Prime Minister Rishi Sunak visited Jaguar Land Rover’s (JLR) UK headquarters this summer. Sunak was there to announce plans by Tata Motors (the Mumbai-based owner of JLR) to build a £4 billion battery manufacturing facility in Somerset, to make lithium-ion cells and batteries for use in electric vehicles (EVs). Coming six months after the insolvency of Britishvolt, Tata’s investment has been touted as a turning point for the UK car industry as it phases out production of conventional petrol and diesel cars ahead of deadlines set by the UK (now 2035) and EU (2035). Subsequent investments by Stellantis and BMW have added momentum to developments in EV manufacturing in the UK, widening those smiles further still.

Localising Battery Production

The race to attract investment in gigafactories, like the one proposed for Somerset, is a potent example of how energy transition and climate change mitigation targets intersect with ‘traditional’ economic and political concerns. The transition to EVs – driven by the need to mitigate greenhouse gas emissions from moving people and goods around – is disrupting the locational logics of global industry and manufacturing, while the battery value chain opens new axes of competition, vulnerability and dependence. The upshot is a strong drive to localise battery production that is propelled, in the main, by geopolitical objectives.

Here lithium takes centre stage. Lithium is a designated ‘critical mineral’ element in the UK, EU, US, Japan, Brazil and Canada (among others) because of its economic importance to those countries and perceived risks to supply disruption. In its refined form and – when accompanied by other refined mineral-based materials such as nickel, cobalt and manganese – lithium provides attractive options for energy storage in the form of lithium-ion batteries. A lithium-ion battery is a materially complex manufactured product and there is a host of cathode chemistries whose different functionalities match the performance criteria of particular applications. Lithium-ion batteries have been the mainstay of the EV revolution (particularly outside of China) although they are not unchallenged: lithium iron phosphate chemistries (used in low and mid-range EVs in China for some time) are expected to dominate globally by 2030 in most EV markets; sodium-based chemistries have begun to enter niche parts of the automotive market; and solid state batteries (for both lithium and sodium chemistries) have been developed in prototypes but are not yet produced at scale.

EV batteries account for over a third of the value of a light duty vehicle and are heavy and hazardous to transport, incentivising short production chains with battery and car manufacturing co-located in the same country or region (a locational logic that challenges upstream lithium suppliers keen to move down the value chain). This drive to localise battery production is amplified, however, by geopolitical concerns that centre on the control China has developed around the refining of battery minerals, the manufacturing of battery mineral-based materials, and battery and EV manufacturing. The US imposed a 27.5% tariff on Chinese-made vehicles under Trump, and China’s dominance in the ‘mine to megawatt’ chain sits behind the US Inflation Reduction Act which creates strong incentives for onshoring and ‘friend-shoring’ battery mineral materials and components. There are similar incentives in Europe. The European Battery Alliance, launched by the Commission in 2017, brings together over 800 industrial actors to develop a complete and competitive European battery chain; while the Important Projects of Common European Interest pool the state aid of member states to collaborate around battery supply chain segments and develop European battery production capacity. The EU Battery Regulation, which came into force in August this year, also aims to localise battery production by creating a circular material economy of battery material recovery, reuse and recycling within Europe. While the EU has not yet adopted US-style protectionist measures towards Chinese EVs, its ongoing anti-subsidy investigation suggests it too may take action to limit imports.

UK Responds: Onshoring to Anchor the Automotive Industry

Sunak’s visit to JLR highlights how the UK too is seeking to onshore global production networks for lithium-ion batteries and build a domestic supply chain. Our recent work shows how the dynamics of onshoring in the UK are less about a global race to counter China and more about securing the UK’s role as an automobile manufacturing platform post-Brexit. The drive to localise battery production and develop battery mineral-based materials (like the cathode) in the UK is intensified by local content requirements embedded in the Trade and Co-operation Agreement (TCA) with the EU that followed Brexit. Known as Rules of Origin, these specify the percentage of total content value that must derive from the UK or EU for tariff and quota-free access to the EU. They were initially set at 40% for EVs, with local content ratcheting up to 55% by 2027, and with a specific requirement for an originating battery pack (with at least 65–70% local content). This TCA’s Rules of Origin make it necessary for UK car manufacturers to localise battery production and, given the significant value of the cathode, much of the supply chain too.

Beyond the Supply Chain

Our work on lithium-ion battery production networks and their intersection with the UK adopts a production network approach that advances upon supply chain analyses. A supply chain foregrounds raw material production and material processing steps. Deepening this view, a production network approach draws attention to dynamics of global energy system transformation beyond raw materials, such as strategies of innovation, cooperation and competition among firms and states. In relation to lithium-ion batteries, these include the intersection of battery production with automobile manufacturing, vertical integration along the battery mineral material chain, and efforts by states to converge battery R&D and industrial policy. A production network approach, then, foregrounds how the organisational structures, geographies and geopolitics of lithium-ion battery production are transforming as battery production scales up. In the case of the UK, for example, it shows how developing domestic supply chains involves state action to secure inward investment, cross-border trade (for example, importing materials and components and securing export markets) and renewed diplomatic alliances. It reveals, in other words, the tension between globalising and localising supply chains and how this tension is mediated by existing geographies of (auto) manufacturing.

Our recent work on battery production networks and their relation to the UK highlights four things.

First, battery manufacturing trajectories are primarily driven by EVs. Automakers are increasingly acting as lead firms in battery production, with the investment strategies of automakers driving production location, battery chemistry and rate of production, and co-ordinating network organisation. In the UK, for example, incumbent auto firms have steered industrial and research policy along technological trajectories that suit their interests, so that battery research, development and production in the UK has been strongly tied to the automotive sector’s needs.

Second, the state plays an active role all along the battery chain. State action underpins the growth of battery markets, facilitated by net zero policies targeting transport and power sectors and measures to support domestic manufacturing and green infrastructure. States are also adapting regulation around minerals to regionalise production of batteries and pre-cursor battery materials: for example, Indonesia banned nickel ore exports in early 2020, and acquired shares in mineral-material production with the long-term aim of EV production; and Chile and Western Australia seek to generate additional value from lithium-bearing mineral processing and other downstream activities. The US Defense Production Act to support domestic production and processing of the minerals and materials used for large capacity batteries is further evidence of how states are drawing on a range of governmental powers to promote domestic upstream activity. In the UK, government support has sought to assemble battery R&D, chemicals manufacturing, automotive assembly and mining and finance expertise into a coherent sector, in initiatives like the Automotive Transformation Fund (ATF), the Faraday Battery Challenge and the UK Critical Minerals Strategy.

Third, efforts to onshore battery production and build a battery production network extend up to lithium mining and refining, battery chemical production, technology development and finance. Funds from the ATF, for example, have been extended to three junior exploration firms exploring for and developing domestic lithium occurrences: Cornish Lithium and British Lithium in Cornwall, and Weardale Lithium in County Durham’s historic lead mining district. ATF support has also gone to Green Lithium to advance plans for Europe’s first large-scale lithium refinery, on Teesside. At the same time, the UK has entered several multilateral and bilateral strategic mineral partnerships – with the US, Australia, Canada, South Africa and South Korea – and is collaborating internationally in pursuit of the Critical Minerals Strategy. Promotion of the UK’s national mining and minerals expertise recognises its strategic, geopolitical potential in a decarbonising world, where mining and minerals attain increasing importance. Technical and commercial mining expertise and knowledge, including mining finance are identified as being foundational to national security (securing supply chains essential to clean manufacturing technologies in the UK) and the possibility of remaking global production networks through international collaboration.

Fourth – and finally – efforts to ‘onshore’ battery production and develop local supply chains are globally connected, in ways that confound simplistic claims of ‘reverse globalisation’ in which national territory becomes a container of production. Our work on global production networks in the battery sector highlights the cross-border geographical and organisational structures through which onshoring is taking place. Efforts in the UK to onshore key parts of the value chain for lithium-ion batteries, for example, are embedding the UK in global networks that span hard rock mining and refining in Australia, chemicals production in Saudi Arabia and battery manufacturing in China. Left unsaid during PM’s visit to JLR was the role of Envision Group – a privately-owned renewables energy firm registered in Shanghai – in the UK’s efforts to grow battery manufacturing capacity (via its 80% stake in Envision-AESC). With its role in Nissan’s Sunderland plant and reported involvement with JLR in Somerset, Envision-AESC will account for around 70 GW of UK production capacity – around 70% of the estimated demand from the UK car industry by 2030. The UK’s battery manufacturing capacity, in other words, will be closely tied to the global strategy of this China-based company.

Battery Geopolitics

The shift from the internal combustion engine to the electric motor, powered by lithium-ion batteries, introduces a complex set of geopolitical relations that intersect and disrupt established economic and political concerns. Questions about lithium availability and the capacity of existing supply chains to scale have attracted much attention, but the geopolitics of batteries go beyond classic supply security questions focused on cross-border supply and raw material import dependence. As a highly manufactured product, cathode materials, cells and batteries (and the EVs that many of them power) are at the centre of industrial strategy and geoeconomic competition, including the long-term gains to be had from research and development, and innovation, investment and trade. A production network approach can help reveal these important dynamics beyond the rather narrow focus of supply security. Significantly, it shows how the organisational structure and geographies of lithium-ion battery production are evolving and transforming as battery production scales up. Understanding these emergent properties of global battery production networks is important for how we re-conceptualise energy geopolitics in the context of energy system transformation. It can also offer insight into cases like the UK, where onshoring battery production is more about the survival of the UK car industry in the aftermath of Brexit than reducing vulnerability in the lithium supply chain. It also shows how the UK’s efforts to localise battery production have involved converging knowledge-intensive research and development, and innovation (reflected in the policy vision of a scientific superpower) with an industrial strategy that relies on foreign investment to build critical UK manufacturing capacity. The tensions inherent to this approach have not gone away, despite the smiles that may have greeted JLR’s announcement this summer.

The authors acknowledge funding support from the UK Energy Research Centre Phase 4 funding programme (EP/S029575/1).

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.

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