UK car production has seen a notable decline in early 2024, with overall output falling by 7.6%.
This drop comes amidst a significant transition period, as manufacturers increasingly shift their focus towards electric vehicle (EV) production.
Significant Reduction in Car Production
The Society of Motor Manufacturers and Traders (SMMT) reported that a total of 416,074 new cars were produced, marking a decrease of 34,094 units compared to the same period in 2023. The primary factor driving this overall decline in production was a considerable reduction in exports, while the domestic market actually saw an increase.
Cars produced for the UK market rose by 17.7% year-on-year to 106,157 units, whereas export production fell by 13.9% to 309,917 vehicles. The European Union remains the largest export market, accounting for 55.4% of the total, followed by the US, China, Turkey, and Australia.
Impact on Electric Vehicle Production
Despite the industry’s shift towards EVs, production of these vehicles also fell by 7.6% in the first half of 2024, totalling 157,224 units. This mirrors a broader global slowdown in demand for electric vehicles.
Electric vehicles now make up 37.8% of total car production in the UK, a figure unchanged from the previous year. This indicates a stabilised yet stagnant market share for electric models.
Global Factors Affecting EV Demand
Notably, Tesla reported a 45% drop in second-quarter profits compared to the previous year and a 4.8% decrease in car sales for the same period.
The reduced demand for EVs has been partly influenced by the withdrawal of subsidies in several European countries. For instance, France reduced subsidies by 20% for higher-income buyers, while Germany ended its EV subsidy programme in December to address budget constraints.
In the UK, grants for buying EVs were terminated in 2022, although business buyers still benefit from some tax incentives. Additionally, the European Union recently increased tariffs on Chinese EVs from 17.4% to 37.6%, plus a 10% duty already in place.
Challenges for European Manufacturers
This tariff hike, justified by accusations of ‘unfair subsidisation’ of Chinese EVs, has made it challenging for European manufacturers to compete. The new Labour government in the UK, however, has indicated it is unlikely to follow the EU’s lead.
Trade Secretary Jonathan Reynolds, speaking at a G7 trade ministers meeting, stated that the UK remains ‘vigilant’ but has not suggested similar tariffs. The Trade Remedies Authority, responsible for addressing unfair international trade practices in the UK, has not yet launched an investigation into Chinese EV imports.
Domestic Market Resilience
Despite the overall decline, the UK domestic market has shown some resilience. Cars produced for the UK market increased by 17.7% year-on-year to 106,157 units.
This growth suggests a steady demand within the domestic market, which could offer some stability to manufacturers in these transitional times.
Future Projections and Industry Adaptations
Manufacturers are now retooling their factories to accommodate the production of electric vehicles, a move considered crucial for long-term sustainability.
While there is a transitional dip in production figures, experts suggest that this shift could eventually lead to a more robust and future-proof automotive industry.
Broader Economic Implications
The decline in car production and the shift towards electric vehicles have broader economic implications, affecting everything from employment rates to supply chain dynamics.
As the industry adapts, it is crucial for stakeholders to navigate these changes carefully to mitigate potential economic disruptions.
The UK automotive industry is undergoing a significant transformation as it pivots towards electric vehicle production.
Despite the current decline in overall car production, this shift is expected to position the industry more favourably in the long run.
