Lex: Tata’s battery project looks expensive and hard to pull off

For British politicians, Tata’s investment plan is a relief. The UK is lagging behind China, Europe and the US in battery manufacturing

The UK’s record on battery manufacturing is a shocker. No wonder Prime Minister Rishi Sunak is celebrating Tata’s plan to invest more than £4bn in a Somerset battery factory. That, alone, will not solve the UK car industry’s challenge — and may store up problems for the future.

For British politicians, Tata’s investment plan is a relief. The UK is lagging behind China, Europe and the US in battery manufacturing. Local start-up Britishvolt collapsed this year.

Batteries are heavy and expensive to transport. In the absence of a domestic supply chain, Britain would run the risk of its car factories moving offshore.

Tata’s gigafactory will produce 40GWh of batteries a year — almost half of what the UK might require by 2030. It would mainly supply Jaguar Land Rover, a national champion owned by the Indian conglomerate.

The problem is that Tata’s project looks expensive and hard to pull off.

Planned investment is equivalent to $125mn per GWh of capacity. Chinese battery plants are built for about $50mn per GWh, according to Neil Beveridge at Bernstein. CATL, the Chinese manufacturer, is planning a 100GWh plant in Hungary that will cost $83mn per GWh.

The cost of batteries will be kept high by UK energy prices. Utility bills are a big component — about 30 per cent in 2021, says Mitsubishi Electric. According to Aurora, an energy consultancy, UK wholesale electricity costs will be more than 20 per cent higher than in Spain by 2030. Reports Tata considered locating its gigafactory in Spain are scarcely surprising.

For JLR, high-cost batteries may not be a disaster. After all, it makes high-end cars. It will need good batteries supplied just when it wants them.

The snag here is that Tata has virtually no experience of manufacturing batteries. It may have to bring in a partner to supply knowhow for the plant. What is really needed by the UK car industry, which has been damaged by Brexit, is a gigafactory run by a market leader such as Samsung.

A full analysis of costs and benefits will have to wait for disclosure of government subsidies — some £500mn was requested. For Tata, the deal is likely to represent a coup. It should allow the Indian conglomerate to offer enticements of its own to partners to gain invaluable experience.

The UK, meanwhile, has little choice but to pay up for battery capacity in a worldwide subsidies contest.

The Lex team is interested in hearing more from readers. Please tell us what you think of the Tata gigafactory in the comments section below

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