CEO Update

Cause for optimism in 2022

28 January 2022 #CEO Update

Manufacturing recovery was never going to be easy last year so it’s unsurprising that the 2021 production outturn was so dismal. Despite UK car production being up for the first nine months, the global shortage of semiconductors hit home in the final quarter meaning the number of cars leaving factory gates fell by -6.7% to 859,575 units. This was the lowest total in 65 years and was a pattern broadly reflected other major automotive markets. Car production in Germany, for instance, was at its lowest output since the 1970s.

UK engine output declined too, by more than a quarter, with manufacturers across the board grappling with staff shortages, component shortages and, in the case of the UK especially, new trading arrangements. The closure of a major UK car plant in July also affected the final figure, compounding a very difficult year.

Despite this gloomy picture, there is room for optimism; the latest production outlook for 2022 suggests that UK car production has the potential to increase to more than one million units, with more favourable market conditions, a gradual easing of the global chip shortage, new – often electrified – models coming on stream and, hopefully, the beginning of the end of the pandemic.

There was, however, good news in terms of commercial vehicle production, with continuing booming demand for vans and light trucks often used for home deliveries. Over the course of the year the number of CVs built increased by 11.3% to 73,600 units.

And in a significant sign for the future, a raft of investments were announced last year, totalling a potential £4.9 billion, including in Ellesmere Port, Halewood, Norfolk, Sunderland and Surrey. Crucially, a significant proportion of these announcements was in support of producing electrified vehicles, with the expansion of existing battery facilities in the North-East and the proposed development of a new gigafactory in the West Midlands.

And 2022 is off to a flyer with new commitments by Bentley and its first electric vehicle which will be made in Crewe amounting to £2.5 billion and a further £100 million from an Indian tech firm Ola, for a new automotive R&D facility in Coventry.

This certainly represents a vote of global confidence in the UK as an automotive manufacturer and is a consequence of the TCA, the trade deal between the UK and EU, which was signed late in 2020 and removed the uncertainty global investors detest.

More such investment will be needed to keep the sector fit for an electrified future – and it must be matched by wide-ranging commitments to our long-term competitiveness. Measures such as the Chancellor’s “super-deduction” have spurred this investment and should continue. But other measures would also provide essential support, notably on training and reskilling and, most urgently, ways to mitigate the UK’s escalating energy costs.

2022 will not be easy but there are signs that it will be better for the UK automotive businesses and all those on whom their growth depends.

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