The UK government is poised to loosen regulations requiring car manufacturers to switch to electric vehicle (EV) production, a move prompted by industry concerns.
This decision, however, arrives too late to avert the closure of Vauxhall’s van factory in Luton, a move that places 1,100 jobs at risk.
Ministers have agreed to reassess the requirement stipulating that at least 22 percent of vehicles produced in British factories must be battery-powered. Failure to comply with the rules means either purchasing credits from competitors exceeding these targets or facing fines of £15,000 per car.
After warnings from car company executives that consumer demand was too low to meet the targets, potentially leading to factory closures and job losses, government officials will consult with manufacturers. The goal is to grant them more leeway in meeting their targets while still fostering increased electric car production in the coming years.
The announcement coincides with the owner of the Vauxhall brand, Stellantis, revealing plans to shutter the Luton factory, which manufactures Vauxhall Vivaro vans. The plant was slated for an upgrade next year to facilitate the production of electric models.
However, Stellantis cautioned that the site was at risk unless measures were taken to boost public adoption of EVs. Following a challenging year, the company has opted to close the plant.
Automakers have grappled with elevated energy expenses following Russia’s invasion of Ukraine, which they have had to pass on to consumers. They did this successfully in the wake of the pandemic when factory shutdowns led to a vehicle shortage.
But now, as factories are producing more vehicles, they face a decline in customer demand amid rising energy bills and mortgage payments. Initiatives aimed at increasing electric car sales have also stalled. EVs are more costly to manufacture because of the expensive materials needed for their large batteries.
Economically strained customers are buying them at a slower rate, leading carmakers to cut prices, reducing their profit margins.
Danni Hewson, Head of Financial Analysis at AJ Bell, an investment broker, remarked: “The decision not to follow through with further investment at the Luton plant will be a blow and is an indicator that car makers feel backed into a corner. The big question will be how to persuade reluctant motorists to make the shift. Lower prices are clearly one option and that is already impacting car makers’ profits. But for some drivers making the switch just doesn’t make sense because they don’t have charging options at home or feel the current charging infrastructure where they drive isn’t up to scratch.”
The Luton site is one of two major plants Stellantis operates in the UK; the second is located in Ellesmere Port. The Ellesmere Port facility specializes in producing smaller vans like the Vauxhall Combo after it stopped making the Astra car in 2021. Van manufacturing will now be consolidated at the Ellesmere Port plant, where Stellantis aims to relocate many of the Luton employees.
The plants export their vehicles under the Opel marque throughout Europe and also produce vehicles under the Citroen and Peugeot brands, which Stellantis owns.
Last month, Stellantis reported a 27 percent decrease in sales, equivalent to €12 billion, for the three months ending September, compared to the previous year.
The company was formed through the merger of several major brands, including Citroen, Peugeot, Chrysler, and Fiat. It competes with industry leaders such as Volkswagen and Toyota.
A government representative stated: “We have a longstanding partnership with Stellantis and we will continue to work closely with them, as well as trade unions and local partners on the next steps of their proposals. The government is also backing the wider industry with over £300m to drive uptake of zero-emission vehicles and £2bn to support the transition of domestic manufacturing.”
