The problematic transition to electric vehicles - what is the impact on manufacturing
It was reported in May 2022 that the BMW-owned manufacturer had been forced to put a temporary stop on the production of all manual transmission vehicles due to the global semi-conductor shortage and the war in Ukraine. Mini stated that the move was made in order to "ensure production stability".
Deliveries at Mini have fallen by over a fifth in the second quarter of this year as a result of ongoing supply chain disruptions caused by the pandemic and challenges with the transition to electrification.
It was reported in May 2022 that the BMW-owned manufacturer had been forced to put a temporary stop on the production of all manual transmission vehicles due to the global semi-conductor shortage and the war in Ukraine. Mini stated that the move was made in order to "ensure production stability".
The difficulties that Mini is experiencing are emblematic of the challenges in the automotive sector at present, and this latest news comes at the same time as an announcement that registrations for new vehicles in the UK had fallen for a fifth consecutive month, as reported in SMMT’s August update.
Challenges
The shortage of semiconductors is one of many challenges currently having an impact on automakers like Mini. These production issues are largely as a result of an increase in demand following shutdowns of manufacturing plants and a shortage of resource caused by the COVID-19 pandemic. These issues have been compounded by:
- shortages of other key materials, such as wire-harnessing, which has traditionally been sourced from Ukraine, which has become difficult to obtain as a result of recent events; and
- the new wave of COVID-19 lockdowns in China.
As a result of the restrictions on the supply of key materials and components and long lead times, manufacturers have been unable to keep pace with the volume of orders and delivery schedules.
The issues affecting supply and demand have caused the cost of material and production to skyrocket. This has been further compounded by rapidly soaring energy costs and the rise in inflation. Manufacturers have been trying to tackle these increased production costs and reduced sales volumes by raising the price of sales. However, this may not be sustainable in the long term in light of the current cost of living crisis.
When announcing Mini’s second quarter results, BMW commented: “High inflation and rising interest rates worldwide are making conditions for consumers less favourable and are likely to influence spending behaviour in the coming months”. If consumer spending does reduce, as is expected, this may have a negative impact on the transition to zero emissions for cars and vans by 2035.
Labour shortages are also fuelling the difficulties the industry is facing. Mass layoffs and an increase in absences due to the pandemic have caused considerable disruption to production. The timing of this has been particularly challenging for businesses given the pressing need for further training, and the need to upskill workforces in order to embrace the new technologies that are powering the shift to electrification. The transition from traditional internal combustion engines to Electric Vehicles and an increase in automation demand new skills and new knowledge. As a result, the recruitment and retention of skilled workers poses a difficult challenge for manufacturers who are already grappling with new ways of building cars.
Solutions
The issues faced by the automotive industry are complex, global and multi-faceted.
The UK automotive industry is a resilient one but help from key stakeholders, particularly the government, can help it overcome these challenging market conditions.
There is no quick way to fix issues such as the global supply shortage, which according to BMW and the SMMT is due to ease as we enter 2023 and beyond. There are, however, areas where government intervention and funding will make a difference:
- The government needs to create conditions for economic growth and increased consumer confidence. This will help to preserve demand in the automotive market and help achieve the UK’s net-zero targets. One option advocated by RAC is for government to reinstate the plug-in car grant in order to support consumer confidence in EVs . A further step would be for government to ensure that its rollout of EV charging infrastructure in the UK continues to keep pace with the rate of EV production, which will encourage consumer uptake.
- Government support will also be needed to address the worker and skills shortages. Support is required to ensure that access to education is available to everyone so that individuals can acquire the knowledge and skillsets needed to succeed in this new technology-driven industry. Businesses need confidence to invest in research and development opportunities and incentives are needed to encourage recruitment, whilst also prioritising the upskilling and retention of existing workforces.
With some judicious support from government and other stakeholders, the UK automotive market can hopefully look forward to a more positive 2023. As the SMMT recently commented: “there is light on the horizon. Next year, the expectation is for 1.89 million registrations… a significant improvement on the past two years”.
This article was originally published by Manufacturing Global in September 2022.
Contact
Paul Kirkpatrick
Partner
Paul.Kirkpatrick@brownejacobson.com
+44 (0)330 045 2318
Related expertise
You may be interested in...
![D.I.P.T. Limited and Others v Sanglier Limited v Apollo Chemicals Limited [2023] EWHC 426 (TCC) – In the middle of the supply chain](/getattachment/1a77e3d7-25b7-4c9d-8f26-20b47a5edf60/sector-GettyImages-627419088.jpg?variant=HeroImageTabletVariantDefinition)
Legal Update
D.I.P.T. Limited and Others v Sanglier Limited v Apollo Chemicals Limited [2023] EWHC 426 (TCC) – In the middle of the supply chain
Press Release
Three strong restructuring and insolvency team join Browne Jacobson
Press Release
Browne Jacobson advise on Rcapital’s strategic exit from facilities and property services specialist Triosgroup
Legal Update
The future of autonomous technology - August 2023
Legal Update
Polluters to face unlimited penalties under new legislation
Legal Update
Food and drink regulatory update - summer 2023
On-Demand
'Autonomous vehicles: what the future holds' on-demand
Press Release
Browne Jacobson announces completion of employee acquisition of Two Twenty
Opinion
Mediation – remote or in person?
Opinion
The UK market offers the best value for commercial real estate
On-Demand
NSIA: the thorn in the side of M&A?
Legal Update
Product distribution – how to protect yourself from an early exit
Press Release
Browne Jacobson advise on disposal of Sella Controls to HIMA Group
Legal Update
Employee who refused to wear a face mask fairly dismissed
Press Release
Browne Jacobson’s dealmakers advise leading door hardware supplier and manufacturer UAP on its acquisition of Maher London
On-Demand
Automotive webinar - EV charging points: contractual and liability issues to be aware of
On-Demand
Automotive webinar - Grant Funding and Collaboration Agreements
In this session, we examined the legal framework around grant funded collaborations and discussed the key risks to be aware of, including IP ownership and compliance with grant terms.
On-Demand
Automotive webinar - Commercial Contracts
Press Release
Browne Jacobson advises sustainable waste solution provider Covanta Europe on its new Wellingborough based aggregate processing plant
Press Release - #BeingBrowneJacobson
From associate to partner in an investment lifecycle - Ryan's story
On-Demand
The UK's green agenda - the outcomes of COP27 and actions since COP26
Press Release - #BeingBrowneJacobson
Browne Jacobson helps the Civil Aviation Authority take off with its modernisation masterplan
Press Release
Browne Jacobson announces former Aston Martin Vice President as Non-Executive Director of its Manufacturing & Industrials sector
Law firm Browne Jacobson has appointed former Vice President and Chief Planning Officer (CPO) of Aston Martin Lagonda, Nikki Rimmington as its first Non-Executive Director (NED) of its Manufacturing & Industrials sector strategy board.
Legal Update
Trigger happy when directors’ duties are the target?
In a judgment handed down yesterday the Supreme Court has affirmed that a so called “creditor duty” exists for directors such that in some circumstances company directors are required to act in accordance with, or to consider the interests of creditors. Those circumstances potentially arise when a company is insolvent or where there is a “probability” of an insolvency. We explore below the “trigger” for such a test to apply and its implications.
Legal Update
The Retained EU Law
Created at the end of the Brexit transition period, Retained EU Law is a category of domestic law that consists of EU-derived legislation retained in our domestic legal framework by the European Union (Withdrawal) Act 2018. This was never intended to be a permanent arrangement as parliament promised to deal with retained EU law through the Retained EU Law (Revocation and Reform) Bill (the “Bill”).
Opinion
Sequana: Supreme clarification on the duty owed to creditors
The Supreme Court has unanimously dismissed the BTI v Sequana appeal and reviewed the existence, content and engagement of the so-called ‘creditor duty’; being the point at which the interest of creditors is said to intrude upon the decision-making of directors of companies in financial distress.
Press Release
Browne Jacobson appoints its first Non-Executive to Chair to support its corporate sector strategy board
Opinion
IR35 rules to be scrapped from April 2023
Published Article
The problematic transition to electric vehicles - what is the impact on manufacturing
It was reported in May 2022 that the BMW-owned manufacturer had been forced to put a temporary stop on the production of all manual transmission vehicles due to the global semi-conductor shortage and the war in Ukraine. Mini stated that the move was made in order to "ensure production stability".
Press Release - Firm news
Browne Jacobson strengthens its UK&I commercial practice with hire of new retail & consumer specialist partner
Browne Jacobson has bolstered its commercial practice in the UK with the appointment of commercial contracts and international trade specialist, Emma Roake, into its City-based London team.
Press Release
Browne Jacobson’s Private Equity specialists advise Palatine on key CTS exit
Browne Jacobson’s national private equity (PE) lawyers have advised leading mid-market PE investment firm, Palatine Private Equity (Palatine) on its exit from CTS Group, the fast-growing specialist in testing, inspection and geoengineering consulting services to the construction and infrastructure sectors.
Press Release
Browne Jacobson’s specialist corporate finance lawyers advise LDC on sale of global IT services provider
Browne Jacobson’s corporate finance lawyers have advised leading mid-market private equity firm, LDC and management on the sale of specialist managed IT services provider, Littlefish to Bowmark Capital.
Legal Update
Digital Markets Act and Data Platforms - FRANDs for life?
The Digital Markets Act (the “DMA”) joins the dots between competition law and data protection law and actively targets data-driven platforms. It is also a comprehensive regulation to take note of, with familiar GDPR-style fines tied to turnover.
Opinion
Cameras in convenience stores: a potential hornet’s nest..?
Press Release
Browne Jacobson advise CTS Group on acquisition of In Situ testing specialists
Browne Jacobson’s private equity (PE) dealmakers have advised Palatine Private Equity backed CTS Group (Construction Testing Solutions Limited) on its acquisition of In Situ Site Investigation, a market leader in Cone Penetration Testing and Pressuremeter techniques and ground investigation services.
Legal Update
Merger and Acquisition trends in the specialist lending market
Published Article
Rolls Royce SMR ambitions will bring Hinkley like benefits to regions
Rolls-Royce has shortlisted six locations for its first factory for small nuclear power stations. We look at the impact on regions & local businesses
Legal Update
Banking Transaction Update July 2022 - North West transactions
There are clearly challenging macro-economic factors at play but at Browne Jacobson we continue to see good levels of transactional activity with certain sectors being particularly buoyant: healthcare, financial services, energy & infrastructure and tech.
Opinion
Covid Rent Arrears: Cinema operators’ appeals dismissed
The Court of Appeal has dismissed two cases regarding rent arrears accrued during the Covid lockdowns. The cases are London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and Bank of New York Mellon (International) Ltd v Cine-UK Ltd.
Press Release
Browne Jacobson advise on the disposal of international chemical manufacturer
Browne Jacobson’s corporate lawyers have successfully advised the shareholders of specialist chemical manufacturer, Amity International on its acquisition by Belimed AG, a subsidiary of Metall Zug AG.