Many will remember the formation of 'great expectations' prior to last Christmas (Q408), as the British government endeavoured to curry-favour with the domestic auto-industry, stating that it would provide an assistance package to alleviate the commercial pressures created by these unprecedented times. That package totalled £2.5bn, of which £2.3bn was a loan format, much of that from the EIB, with the remaining £200m allocated for subsidised investment (of which £35m was for training).
Although exacting detail of the full £2.5bn fiscal allotment still remains opaque, Lord Mandelson & Geoff Hoon (respectively representing Business & Transport departments) announced that £250m will be directed at the new car sales of PHEVs and EVs. This money is designed as a 'consumer-pull incentive', with purchase subsidies ranging from £2,000 to £5,000.
First impressions substantiate investment-auto-motive's previous Q107 assumption that public monies would be used to retain the goodwill of the now well-established Japanese 'transplant' companies. Toyota, Honda and Nissan obviously operate large manufacturing concerns here in the UK and are of course leaders (with Mitsubishi) in hybrid and EV designed cars. The government recognises that retaining that goodwill and industrial presence will in turn create a technically advanced, eco-orientated, supply-base.
This national productivity asset when allied to continued flexible labour policies and equally flexible sterling FX policy (as we see today with the weak £GB), historically low interest rates and so in due course cost of capital, all work together to create a solid foundation from which to attain new UK standards regards:
1. 'Greener' high-volume mainstream vehicle manufacturing base.
2. 'Greener' modules, components & parts supply sector
3. Viable access to eco-technology for the numerous specialist vehicle manufacturers
4. Strengthened Domestic economies at 'intra-sector' & 'inter-sector' local and national levels.
5. A strengthened Foreign Export base to assist National Debt and PSBR levels.
6. 'Snowball' attraction of further FDI from Eastern 'liquid' commercial enterprises (eg BYD Auto), PE and SWFs
Thus British politicians understand that the progress made by the Japanese over the last 15 years or so in the field of hybrid and electric vehicles plays a major part in the long-term fortune of the UK auto-sector and the national economy itself – even if the short-term news of lay-offs etc has been temporarily painful.
Toyota Manufacturing UK at Burnaston assembles Auris & Avensis whilst its Deeside plant produces engines. The new larger hybrid Prius (model #ZVW30) [inc Plug-In variant] will have been designed in conjunction with Avensis & Auris, sharing base platform and high parts content, so logically will have been productionised for Burnaston. New Avensis also uses a new generation Deeside built hybrid 'synergy-drive' engine partly funded by a £100m grant in 2007. So it seems the previous question UK produced Toyota hybrids looks to have been crystallised. Both Gordon Brown & Geoff Hoon have been previous unveiling VIPs for TMUK, and both appreciate the global commercial power and technical leadership of the company [Toyota alone claims to have invested £2.56bn to date and employs 13,000 people].
Honda UK at Swindon assembles Civic, CR-V and is rushing in production of the Jazz small car to match market sentiment. But its big global news is obviously the release of Insight2 – a new hybrid designed as a smaller competitor to Prius3. And like its homeland peer, that car will have been created as part of a holistic platform strategy, in this case derived from Civic. So Swindon should be capable of producing Insight2 from the same flexi-production line on either 'batch' or 'to order' basis. Logically, production planners would have used the 2 month non-production period of February & March to switch CR-V production-line to the very different Jazz orientation, and possibly set-out the Civic line to include the extra complexity of Insight2 as and when it should be given the UK go-ahead.
Nissan Manufacturing UK (NMUK) at Sunderland produces Micra (and variants) and Qashqui (and variant), operating in conjunction with a regional R&D Technology Centre & Administrative Hub located at Cranfield; with claims that it produces 20% of the UK's passenger car export volumes. Having suffered in the early part of the decade Nissan leant heavily on Renault as it sought to re-align its model range across predominantly small cars, 4x4s & cross-overs in Europe, with latterly Carlos Ghosn's proclamation that EV would be a major pillar of Nissan's future strategy, even if he does not discount other hardware and energy solutions for CO2 reduction. That EV future created with Renault and R-N business partners ranging from Project Better Place & the Israeli government to US State & Federal agencies (eg Pheonix, AZ) to China's Ministry of Industry & IT to create the critical e-charging infrastructure. [11 world-wide agreements in place as of Q208]. And like its peers with Prius-Avensis & Insight-Civic, its the ability to create platforms with multiple powertrain options that is key. Hence, previously Nissan showcased the Cube EV, itself a variant from the Micra/March platform – with claims that a full EV line-up will be available by 2012 ranging from the Cube to compacts to sedans to MPVs to sportscars. [Highly debatable as a volume offering in our opinion given the stretch on resources and endemic technical limitations; more a case of low volume 'crafted' EV variants for positive publicity within that timeframe. However creating such segment specific Evs even at low volume will provide invaluable engineering and business plan learning). Thus the Micra production line in Sunderland – or an offshoot of it - appears feasibly able to assemble the Cube EV for the UK and Euro markets, but Nissan must lobby for increased e-charge infrastructure beyond the £20m currently set aside.
However, there is general sentiment amongst industry analysts is that electric and plug-in hybrid cars are unlikely to be adopted widely in the short-medium term without generous incentives to underwrite the cars’ typically higher purchase price.
As we saw with Prius1 & Prius2, much of the cars price suppression for market acceptability came from Toyota's swallowing of costs as a loss-leader tactic. Of course the ramped volumes of Prius gave economies of scale that reduced Toyota's Ni-MH battery and motor costs, and to a certain lesser extent the same can be said of Honda after its less successful Civic hybrid effort. And Nissan-Panasonic will have created detailed business cases for each of their EV model-lines, though-based on only outline volume forecasts. These e-drive R&D and production costs will still be substantive compared to standard ICE – and even ICE developments - given that on national, regional and global TIV terms the number of 'early-adopter' consumers who absorbed the brunt of the apportioned development costs has been comparatively small.
Geoff Hoon said that incentives announced on Thursday would help to make electric cars a “real option” for motorists. But of course much depends on varying consumer types vehicle usage needs, their attitude & 'psychographic' and of course the allotment of the £2000-5000 subsidies. With specific reference to EV options they need to be awarded in a manner that pro-actively rewards newer and better vehicles, and not simply propping-up old yesteryear models. To do so would simply create an evolutional vacuum in which the extended life of the “Noddy Car” type of EV would tarnish the genre and public attraction; which would do more harm than good.
Britain's policy-makers are now catching-up with EU contemporaries that have been 'incentivising' low-carbon cars - ie Denmark, Norway, France & Portugal - which have tax-based policies. The UK looks unready to go that far yet, given the reliance on motoring tax and the massive fiscal deficits that need financing. So Gordon Brown's announcement that he wanted all cars on Britain’s roads to be electric or hybrid by 2020 looks unrealistically-optimistic; especially so given the increasing likelihood of a Conservative government winning the next election and David Cameron's pledge to be fiscally responsible which probably means increasing taxation across all fronts – consumer durables included.
For the UK at least, that means the UK auto-industry, led by its Japanese 'Sensi' should create 'must have' rational yet highly attractive products. Vehicles which engender a sector-snowball effect in their wake for the development of a new 'eco-tech' industrial terrain for Britain's “Green and Pleasant Land”.
