Is Stellantis’ latest threat to axe UK plants credible?
Tuesday, 2 July 2024 ()
Public threat made to targets government's ZEV mandate
Stellantis last week put a gun on the table and threatened to take out its UK manufacturing facilities if the Government didn’t change its position on the ZEV mandate.
Publicly threatening to axe UK manufacturing has become the preferred negotiating tactic by global car makers who, for whatever reason, feel they aren’t being heard through the normal back channels.
In recent years, Nissan, BMW, Toyota, Stellantis and Ford have all warned they’ll leave the country if the government can’t provide the right environment for competitive vehicle and parts manufacturing.
The biggest recent fear was the effect of Brexit. However Stellantis has now raised its gun on a new target: UK government policy and the requirement to sell a growing percentage of electric vehicles.
Stellantis, which makes vans in two plants here, is worried that the legislation is running far ahead of consumer demand. “If demand does not follow the offer, then we will be forced to take decisions. For sure, there will be consequences on the production set-up,” Maria Grazia Davino, head of Stellantis in the UK, told journalists at an event last week staged by automotive lobby group the SMMT.
The question for a future government is just how realistic this threat is, given the company’s recent investment.
Stellantis last year restarted production at its Ellesmere Port facility after a £100 million makeover to switch production from the Astra to electric compact vans for its Peugeot, Citroen and Vauxhall brands. Meanwhile it has also promised to build electric versions of its midsize van range at its Luton plant from next year.
“I do think it's a credible threat,” David Bailey, professor of business economics at the Birmingham Business School, told Autocar. “Stellantis is unfortunately a footloose multinational with considerable capacity across Europe. They can switch production if they want to.”
Stellantis was using just 56% of its plant capacity across Europe last year, figures from GlobalData show. That’s bad for efficiency but it does make for a very effective negotiating tool, one that Stellantis CEO Carlos Tavares has shown he’s not been afraid to use elsewhere, for example Italy.
The biggest threat to Luton is Stellantis’s plan to start building the same K0 van range – including the Vauxhall/Opel Vivaro – from 2025 at a refitted plant in Turkey run in partnership with Koc Holdings.
Koc is also partnered with Ford in Turkey to build the Transit midsize and large vans, a highly profitable operation.
Competing with Ellesmere Port meanwhile is Stellantis’s Mangualde plant in Portugal which from 2025 will start producing the same Citroën ë-Berlingo, Peugeot e-Partner, Opel Combo-e Fiat e-Doblo as the facility in north west England.
Compared to the UK both facilities should be much cheaper locations to build vans. Portugal for example has consistently the lowest wholesale energy prices in Europe, according to the energy research group Ember. The UK’s high energy prices are among the biggest complaints of manufacturers operating here.
There’s no evidence pulling out would harm sales. Ford’s decision to pull Transit production out of Southampton for Turkey in 2013 has had no effect on demand – the Transit Custom was by far the UK’s best-selling van in the UK in the first quarter, according to SMMT figures.
“Van production in the UK is Stellantis. So if they decide this is not sustainable, that's it,” said Bailey. “We could be looking at a vanishing van industry.”
Recent history has shown however that faced with a credible threat, the UK government will generally give the vehicle makers what they want. Stellantis for example was ready to pull out of Ellesmere Port following the end of Astra production until the Government stepped in with a reported £30 million of the £100m retooling cost to make EVs.
If Stellantis really wanted to divest itself of Ellesmere Port, that would have been the moment, one senior industry figure told Autocar. “If they wanted to leave, Brexit gave them the perfect opportunity,” they said on condition of anonymity.
Nissan has had perhaps the greatest success on that front, reportedly receiving “hundreds of millions” of government money towards the cost of the £2 billion investment pledge to shift production to electric vehicles at Sunderland after the company voiced a series of threats.
BMW meanwhile reportedly benefited from a £75 million cash injection from the Government towards the £600 million investment cost to bring electric Mini production back to Oxford from 2026. BMW had been among those threatening to leave if Brexit made life too difficult for Mini.
Life is tougher for those luxury manufacturers whose long UK manufacturing history anchors their global brand, meaning they don’t have the same leverage. Bentley has privately grumbled that it got almost nothing from the UK government towards its £2.5 billion investment announced in 2022 to build electric cars. Companies like Bentley have long argued for a more coherent and transparent industrial policy instead of the current hostage-style negotiations.
Leaning on the government for more support is nothing new, but recent events has increased the frequency. “I think part of the reason why car makers see threats as the only way to get support is because we don't have an industrial policy after Boris Johnson scrapped it,” said Bailey.
The Conversative government has been particularly keen to hang onto car makers after Brexit threw up barriers they didn’t have before, further pushing up manufacturing costs in an already expensive country.
It might be time for the UK to focus its investment on high value manufacturing instead, argues Michael Leiters, CEO of McLaren Automotive. “If we want to compete on the cost side and achieve cost leadership, we will fail,” Leiters told Autocar on the sidelines of the same SMMT event last week.
“It's not only about McLaren, many [UK car makers] including JLR have very clear positioning. They are succeeding due to great products. It's not low cost, it's high cost,” Leiters said.
McLaren argues that mandating a fast shift to electrification risks losing some of the premium technology leadership built up by the UK’s luxury makers, which has mainly focused around combustion engines and platforms that accommodate them.
Taking a longer route would enable UK investment in the next generation of high-performance electrification, including batteries. “We must harness the skills, knowledge and ingenuity of the UK motorsport and performance car industry to create a global, high-performance centre of excellence,” Leiters said.
Car makers like Stellantis and McLaren are making their pitch to Labour in the expectation the party will form the next government following the election on July 4.
Labour has so far pledged to reinstate the ban on sales of new pure petrol and diesel cars from 2030 but Stellantis is obviously hoping the party’s traditional focus on keeping manufacturing jobs makes it susceptible to threats to move those abroad. All eyes will now be on the reaction of the new government.
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