SMMT warns new EU trade barriers threaten UK automotive manufacturing investment

The UK's automotive manufacturing sector faces growing pressure from a combination of rising production costs, tougher international competition and new post-Brexit trade rules that could undermine future investment in UK vehicle plants, the Society of Motor Manufacturers and Traders (SMMT) has warned.

Speaking alongside the launch of the organisation's latest industry assessment at the SMMT International Automotive Summit, SMMT chief executive Mike Hawes said urgent government action is needed to maintain the UK's competitiveness as manufacturers decide where to locate future vehicle and battery production.

The SMMT said the UK remains an attractive location for advanced vehicle manufacturing but warned that maintaining competitiveness will require urgent action from both the UK government and European policymakers. The industry body argues that decisions being made over the next 12-18 months will influence where manufacturers allocate future electric vehicle programmes, battery investment and next-generation production capacity.

Manufacturing competitiveness under pressure

While UK production showed modest signs of recovery in May, manufacturers continue to operate in an increasingly difficult environment. Rising labour costs, weak global demand for electric vehicles, geopolitical uncertainty and intense international competition are all weighing on investment decisions.

The SMMT argues that improving the UK's competitiveness must become a central pillar of industrial policy if Britain is to secure future vehicle programmes and attract investment alongside major European manufacturing centres.

One of the industry's biggest concerns remains the cost of industrial electricity. UK manufacturers continue to face significantly higher energy prices than many European competitors, placing additional pressure on energy-intensive operations including stamping, body construction, paint shops and battery production. Combined with wider cost inflation, this risks making UK plants less attractive when global manufacturers decide where to locate future production.

EU trade proposals raise fresh concerns

Alongside domestic competitiveness, manufacturers are increasingly concerned about new EU industrial policies designed to strengthen European production.

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The proposed Industrial Accelerator Act includes "Made in Europe" provisions that could restrict access to certain incentives and procurement opportunities for vehicles built outside the European Union. Although intended to strengthen Europe's industrial base in response to growing competition from China, the proposals risk placing UK-built vehicles at a competitive disadvantage despite the highly integrated nature of European automotive manufacturing.

For UK assembly plants, the concern extends well beyond exports. Any reduction in the competitiveness of UK-built vehicles could influence future model allocation decisions, particularly as manufacturers invest billions in electrified platforms over the remainder of the decade.

Industry groups on both sides of the Channel have urged policymakers to recognise the close integration of UK and EU manufacturing, arguing that barriers affecting UK production will ultimately weaken the wider European automotive sector.

Battery production remains a strategic priority

The transition to electrification continues to reshape manufacturing strategies across Europe, but the SMMT warns that battery production remains a critical weakness for both the UK and the wider region.

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New SMMT data shows UK registrations hit 380,627 in March (+6.6%), with BEVs up 24.2% to 86,120. Yet EV share sits at 22.4% versus a 33% target, while Chinese OEMs doubled market share to 11.1%, reshaping competitive and supply chain dynamics.

Current UK-EU trade rules require increasingly high levels of regional battery content for electric vehicles to qualify for tariff-free trade from January 2027. Manufacturers have consistently argued that European battery production has not expanded quickly enough to meet those thresholds, creating the risk of additional costs just as companies are investing heavily in new EV programmes.

For UK manufacturers, expanding domestic battery production and the wider EV component ecosystem will be essential if future vehicle programmes are to remain competitive.

Competitiveness extends beyond regulation

Throughout the summit, executives argued that improving competitiveness requires more than regulatory reform.

Energy costs emerged as a recurring concern, with SMMT warning that although the British Industrial Competitiveness Scheme represents an important first step, UK industrial electricity prices remain around 60% higher than the EU average even after planned support measures. Hawes argued that fundamental reform of industrial energy costs is necessary if the UK is to attract future investment in battery manufacturing, electric vehicle production and wider automotive supply chains.

During the opening industrial strategy panel, Unipart managing director Carol Rose Burke said long-term investment depends on competitiveness in areas including energy, skills and speed to market, while calling for greater attention to supply chain capability rather than focusing solely on final vehicle production.

Investment decisions cannot wait

The SMMT believes the industry's long-term prospects remain strong, supported by the UK's engineering expertise, established manufacturing base and history of producing premium and advanced vehicles. However, it warns that investment decisions are being made now.

The organisation is calling for measures including lower industrial energy costs, greater regulatory certainty, continued cooperation with European partners and policies that encourage investment in battery manufacturing and advanced production technologies. Together, these measures would strengthen the UK's position as manufacturers determine where the next generation of electric vehicles will be built.

For automotive manufacturers, maintaining the UK's position as a global vehicle production hub will depend less on short-term trade arrangements than on creating a competitive industrial environment capable of attracting long-term investment.