The Tata group's announcement of setting up a 40 GW battery cell gigafactory with an investment of over £4 billion in the United Kingdom (UK) comes close on the heels of its $1.6 billion MoU with the Gujarat government for setting up a similar plant in the state. Taken together, with two such factories, the Indian conglomerate bids fair to emerge as a major player in the global electric vehicle supply chain.
Its two captive auto-making units, Tata Motors at home, and Jaguar Land Rover (JLR) in Europe give it the advantage of two anchor customers already in place, a definite edge over other pure-play battery makers. For instance, Chinese company Envision, currently the only other battery maker in the UK, bought Nissan's electric car battery business in 2019, presumably for just such a symbiotic relationship.
For Tata, the synergies between the two businesses are huge, with both Tata Motors and JLR setting themselves firmly on the road to redemption through electric vehicles. Since it bought JLR in 2008, the Indian conglomerate has faced challenges in being consistently profitable with its acquisition. But driven by increasing volumes from the British carmaker, Tata Motors reported a profitable fourth quarter and a plan for JLR to invest a whopping $19 billion in electric vehicles over the next five years.
The battery manufacturing plan, though, also needs to be looked at in the larger context of the somewhat frosty relations between another Tata group company, Tata Steel, and the UK government. A decision on potential closure of its Port Talbot steelworks, which came with another of its acquisitions, that of Corus in 2007, looms large with the future of 9000 workers in the balance.
Tata Steel had said it might consider shutting down its UK operations if its demand for a financial package of £1.5 billion from the UK government to support its decarbonization plans was not met. The UK government, in turn, had offered £300 million to the company, a deal it offered to sweeten somewhat in April. But after posting a steep 84 percent fall in its consolidated net profit for the quarter ended March 2023, the Indian company didn't appear in the mood to relent.
As the UK's largest steelworks, the Port Talbot plant's future is a political hot potato for the government in power. Its closure could lead to a surge of Chinese steel into the country, though the threat of lost jobs has so far dissuaded the nation's government from calling Tata's bluff, if indeed it is that. While the stalemate continues, it is a headache for both parties.
The announcement of the new gigafactory, therefore, should act as a balm on these pain points. It helps that Prime Minister Rishi Sunak's government is believed to be providing substantial financial support, including a special deal on energy costs for the project. That is the global norm, with countries offering sops to battery makers to set up manufacturing.
The UK trails its neighbors like Germany in battery manufacturing capacity, with the EU already home to 25 gigafactories that are either operational, under construction, or in the planning stage. In January of this year, the home-grown Britishvolt's £3.8 billion gigafactory plan collapsed when the company declared bankruptcy after failing to find financial backing. That exposed the country's vulnerabilities as it chases a green future. According to projections by the Faraday Institution, there will be a demand for 10 UK-based gigafactories (large, high-volume battery manufacturing facilities) by 2040, each producing 20 GWh per year of batteries. These are imperative if the country is to achieve its net-zero target.
The mega investment from Tata will go some way in filling the gap and will act as a boost for the UK government. No wonder Sunak called it a "huge vote of confidence in Britain." Indeed, Sunak's statement, which formed part of the press release issued by Tata Sons, indicates that he is prepared to play an active role in promoting the country's economic interests.
If he extends that to the subsidy that Tata Steel has been asking for, Tata's Indian summer in England would be complete.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
