UK Battery Industry Market Analysis
Driven by the growing demand for electric vehicles, the demand for lithium-ion batteries has been on the rise worldwide and is expected to exceed 6,500 gigawatt hours in 2050. The United Kingdom is not an exception: in May 2020, two UK start-ups, AMTE Power and Britishvolt, announced plans to build the first large-scale battery factory to ensure a supply of cells for domestic carmakers. Until now, European and UK carmakers have been buying batteries from South Korea and China. There are, however, massive opportunities for the UK to step up its battery production capacity to meet the automotive industry’s rising demand.
Strong synergies can be achieved when vehicle producers and battery manufacturers are situated in close proximity to one another. Given the fierce competition within global automotive production networks, these synergies will heavily affect the location of vehicle production. As a result, if the new gigafactories required to assemble the batteries used in EVs are solely built outside of the UK, there is a high risk that international car makers will also only invest in production of future EV models in plants outside the UK.
For this reason, the switch to the production of EVs puts jobs in the UK automotive industry at risk. In a worst-case outcome, with no large-scale UK battery production, domestic vehicle producers would gradually wind down their production of internal combustion engine vehicles, progressively eliminating the jobs of the 170,000 people directly employed in the UK automotive sector. The speed of this change is difficult to predict, since it depends on a number of variables that we have modelled. But, under any plausible set of modelling assumptions, the scale of the effect would be considerable. In the absence of any gigafactories producing batteries and associated EV manufacturing, we forecast that direct automotive employment would be 105,000 lower in 2040 than it would otherwise be.
At the opposite end of the spectrum of possibilities, the UK – in partnership with investors from Asia and elsewhere – could become a leader in the production of both batteries and EVs. In this scenario, the UK would build upon its strong existing automotive industry and greatly expand its global market share by establishing itself as a European centre for battery and EV production. This could lead to a substantial increase in UK vehicle production relative to today. However, this outcome will be challenging to achieve and will depend both on successes within the UK that will be difficult for UK governments to bring about and failings elsewhere in Europe.
Main Events happening in the Market
Currently, the UK grid faces significant challenges driven by macro changes:
- Large scale plants are starting to be decommissioned: the market expects the closure of fossil generation and nuclear powerplants in the short-term, and
- A commitment to increase renewables generation: For example, in 2019 the UK Government reported its annual statistics on the performance of the industry over the previous years. In that document, it was disclosed that renewable generation in GB and Northern Ireland reached 33.3% in 2018, growing from 24.5% in 2016. The UK has committed to reduce greenhouse gas emissions by 80% by 2050, compared to 1990 levels, as well as signing the Paris Climate Agreement in 2015.
The problem for the U.K. is that the situation is changing rapidly. European nations such as Germany and France are investing billions into battery manufacturing capacity, and in Asia the sums are likely even higher.
- Manufacturer of lithium-ion battery technology, Hyperdrive Innovation, has opened the UK’s largest independent battery manufacturing facility in Sunderland today, which will support the Government’s industrial strategy and 2050 carbon neutral target(2019)
A potentially landmark agreement to explore the construction of an electric car “gigafactory” has been signed between two UK startups, AMTE Power and Britishvolt. If successful, the new memorandum of understanding between AMTE Power and Britishvolt would see as much as £4 billion invested in a new “gigafactory” with a potential 35GWh capacity, enough to rival the likes of Northvolt which has plans to output 32GWH a year at its Swedish battery factory in Skellefteå by 2024, and 24GWH from its German factory in Salzgitter.
Future prospects for the Sector
Under our central scenario, the Faraday Institution battery demand forecasting model projects that UK EV battery manufacturing capacity in 2040 will be around 140 GWh per year6 (i.e. around 12% of the projected 1,200 GWh per year European battery production capacity in 20407). This implies a very considerable growth in UK battery manufacture with the establishment over the next twenty years of about 7 battery production plants (“gigafactories”) in the UK with each producing on average 20 GWh of battery capacity each year.
But other European countries and governments are also working hard to secure and grow a new battery industry and challenge the UK technology leadership position. Germany, Sweden, Poland and Hungary have emerged as key leaders and have done so by creating favourable business conditions to attract battery manufacturers. Germany and France, for example, have announced €1 billion and €700 million respectively of financial support towards EV battery production.15,16 In Poland and Hungary, special economic zones have been set up that offer tax relief to EV battery producers. The European Commission has also recently approved €3.2 billion of public funding, from Belgium, Finland, France, Germany, Italy, Poland and Sweden, for pan-European research across the battery value chain.