Nissan’s commitment to the UK automotive sector’s electrified future is essential for the development of the UK’s EV battery supply chain and of major importance to both the UK government’s domestic decarbonisation of mobility strategy and post-Brexit industrial policy.
From a practical perspective, it is essential to the competitiveness of UK automotive production that the largest domestic automakers commit to producing EVs in the market and manufacturing their costliest and most politicised component (the battery) internally, in Nissan’s case through an extended joint-venture with Envision, who already produce battery cells for the Nissan Leaf at the Sunderland plant.
The 1bn investment, which is expected to create up to 6,200 new jobs and is thought to have received specific financial support from the UK government, takes the UK’s planned and operational battery-cell production capacity to around 43GWh, accounting for around 6.3% of the European total. As part of the agreement, Envision has the option to future-phase investment in the expansion of the site where potential capacity could be as much as 30GWh by 2030.
We expect to see more details on the development of a localised battery materials supply chain for UK gigafactories (all of which that have been officially announced are in the North-East of England) over the coming quarters, as automakers seek to limit their exposure to external commercial and political supply-chain pressures. This focus on localisation is creating sub-regional hubs for EV battery manufacturing – we contend that the North-East of England is fast becoming one. Home to all 3 of the UK’s formally announced gigafactories, including a 30 GWh site from start-up Britishvolt, the region’s increasing prominence in this sector supports our contention that the primary pull factor for battery manufacturers will shift from low labour costs to the availability and cost of renewable energy. Battery manufacturing and recycling are energy intensive processes. Increased automation, an increasingly restrictive emissions environment and increased ESG-related considerations among policymakers, manufacturers and consumers has and will continue to drive this shift. The region along England’s North-East coast will therefore continue to benefit from its access to a diverse energy basket that includes the increasingly decarbonised grid, offshore wind and a North Sea link to Norwegian hydropower.
The announcement will be heralded as a vote of confidence in the UK’s post-Brexit industrial future and will help Nissan as it mitigates the onset of increasingly stringent local content requirements for EV components agreed in the EU-UK Trade and Cooperation Agreement (TCA) over the coming years. We have previously highlighted how the TCA commits to a phasing-in of local content requirements for EVs, EV batteries and their components, though does not allow for diagonal cumulation with common trade partners, creating risks to the long-term competitiveness of UK EV exports.
From 2027, in order to qualify for tariff free export to the EU (by far the UK automotive sectors largest export partner accounting for around 58.0% of total UK vehicle exports in 2020), 100.0% of battery materials must be sourced in the UK or EU. This is emblematic of the European region’s target to attain strategic autonomy in the EV battery supply chain, which has become heavily politicised and of critical importance both to domestic EV penetration prospects and the development of the energy storage industrial sector which is essential to broader decarbonisation initiatives.
We expect the battery chemistry focus to remain on a dominant high-nickel variation of the NMC (Lithium Nickel Cobalt Manganese Oxide) which has been used in the long-range Leaf to date.
We expect to see details emerge pertaining to the UK government’s support for the investment, which we have noted must become increasingly specific. Lastly, we expect to developments in the associated supply-chain over the coming quarters, specifically for raw materials extraction, refinement, processing and recycling after use. While geology will limit the extent to which the extractive element of the upstream can be localised, we expect the strategy of regonalising EV supply-chains to sustain.