CEO Update

Energy costs remain a threat to competitiveness

13 January 2023 #CEO Update

The automotive industry has continued to battle significant challenges during the last three years, from lockdowns to component shortages, logistics costs to skills shortages. The most immediate threat to competitiveness – indeed, to the very viability of many operations – is the cost of energy. The sky-high prices, which forecasters believe will continue this year and into next winter, pose a clear and present danger to many businesses.

Energy remains the second largest automotive manufacturing input cost and with UK businesses already facing the highest electricity costs in Europe, the continued price volatility is something they can ill afford. Investments in energy saving technologies have been made across many sites over many years, so further reductions in usage will require significant additional investment at a time when financial pressures are most acute. Therefore the government’s announcement this week of a new Energy Bills Discount Scheme, whilst welcome in principle, will likely do little to offset the sizeable energy bills expected.

Automotive is one of the UK’s largest exporters and a trade intensive sector subject to intense global competition. Energy is an uncompetitive factor in UK manufacturing so we had hoped the Chancellor would go further, affording automotive the same mitigation as Energy Intensive Industries. This is an opportunity lost in the battle to retain UK competitiveness so we look to the upcoming Budget for additional measures – such us the continuation of our sectoral climate change agreement and fiscal incentivisation of energy efficient capital investments – to ensure UK automotive companies can compete on the global stage.

Further afield, SMMT was in India this week as part of a trade delegation, participating in a series of events and meetings including the Auto Expo Components Show and Motor Show as well as no less than three different automotive conferences. We also met with a wide range of stakeholders, including the Society of Indian Automobile Manufacturers, the Automotive Component Manufacturers Association of India, the Confederation of Indian Industry (CII), representatives of the Indian Government and industry.

India is the world’s fourth – soon to be third – largest automotive market and has ambitions for electric vehicles to represent 30% new market share by 2030. There are new commercial opportunities in the country for British automotive companies in supply chain, technology and aftermarket. With the UK and India in the midst of free trade agreement negotiations, the timing of this visit was no accident as we seek to ensure that the interests and potential of the UK automotive sector are understood by all sides given the benefits a fair deal can bring to industry and consumers in both countries.

Many of these events have not run since before the pandemic so were understandably very well attended, and they provided a platform for a number of new electric vehicle launches. India and the UK have a long, shared history and share the need to decarbonise road transport, albeit with slightly different approaches and timescales, with the UK committed to Net Zero by 2050 and India by 2070. The need for innovative solutions appropriate to the market and the business opportunities that are emerging, however, were evident for all who attended.

The visit to India is the first of multiple overseas SMMT missions planned in 2023, including Turkey, Poland, Japan, US, Dubai and Korea, to help members and the wider UK auto sector generate new business. For more information and to get involved contact the international team here.

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