The UK automotive sector is facing mounting pressure from falling production, global uncertainty and tightening European regulations, despite continued growth in electric vehicle (EV) demand.

Cars not vans

Latest figures from the Society of Motor Manufacturers and Traders (SMMT) show that overall vehicle production declined by 8.2% in the most recent month, with 72,511 units leaving UK factories.

This included 69,755 cars, down 0.8%, and just 2,756 commercial vehicles (CVs), a sharp 68.3% decline.

The steep drop in CV output reflects ongoing restructuring in the sector, including the closure of Vauxhall’s plant in Luton.

Car production has also been affected by temporary supply chain disruptions, including a parts shortage that halted output at a major plant, as well as weaker export demand from key global markets and model changeovers.

Foreign markets

Exports continue to dominate UK automotive manufacturing, accounting for 70.3% of output.

However, shipments abroad have also declined, with car exports down 4.3% to 49,339 units and CV exports falling 54% to just 1,602 units.

The EU remains the UK’s most important trading partner, taking 62.6% of car exports and 91.6% of CV shipments.

Demand from Europe has shown a positive resilience, with car exports to the bloc rising for a fourth consecutive month, up 4.8% year-on-year.

But this growth has been offset by sharp declines in other major markets, including the United States (down 24.1%), China (down 47.9%) and Japan (down 25.3%).

Homeward bound

While domestic car production for UK buyers rose by 8.7%, CV output for the home market plunged by 77.9%, potentially tightening availability of vans and work vehicles in the near term.

The broader quarterly picture underlines the scale of the challenge.

In the first three months of the year, UK factories produced 208,088 vehicles, down 13% compared with the same period in 2025.

Car output fell 6.7% to 200,889 units, while CV production dropped 70% to just 7,199 units.

Exports accounted for 75.8% of production, though overseas shipments declined by 12.4%.

Industry leaders warn that the increasingly difficult global environment is causing ongoing stability issues. 

Rising energy costs, partly driven by geopolitical tensions in the Middle East, are adding to manufacturing expenses, while higher oil prices risk dampening demand in key markets.

In response, the UK Government has introduced the British Industry Competitiveness Scheme (BICS), aimed at reducing electricity costs for manufacturers.

Getting there

The SMMT has welcomed the move, describing it as a critical step in improving the UK’s global competitiveness.

Mike Hawes, SMMT chief executive, said: “Car production stabilising in March is welcome news for both assembly and the wider supply chain. Government’s recent intervention to bring down electricity costs will provide a major and long-called for boost, but the scheme’s benefits must be delivered urgently as the geopolitical situation offers little optimism.”

However, the industry faces additional uncertainty from Europe.

Proposed EU measures, including the Industrial Accelerator Act and the “Made in Europe” policy, could restrict access for UK-built vehicles if left unamended.

The SMMT warns that these risks undermine a trading relationship worth €80 billion annually.

Hawes added: “We must ensure any ‘Made in Europe’ proposals from the European Commission do not exclude the UK… The EU and UK must work together to avoid that scenario—and the looming threat of tariffs arising from stricter rules of origin on electrified vehicles.”

Those rules, due to be tightened in 2027 under the Brexit trade agreement, could impose tariffs on EVs and batteries that fail to meet local-content requirements, posing a further challenge for manufacturers transitioning to electrification.

Fuelling the future

Despite these headwinds, the shift towards EVs continues to gather pace.

Electrified vehicles now account for a growing share of both production and sales, driven by regulation and consumer demand.

Investment is also increasing, with a £380 million funding boost for the Advanced Propulsion Centre expected to support battery innovation and create thousands of jobs.

Emily Sawicz, analyst at RSM UK, said: “Persistent cost pressures, supply chain risk linked to the Middle East conflict and subdued confidence continue to weigh on manufacturing activity, limiting the scope for a near-term recovery.”

She added that new technologies, including advanced batteries and range-extender systems, could help UK manufacturers remain competitive against global rivals, particularly Chinese EV producers.

As the industry navigates a period of profound transformation, balancing trade relationships, cost pressures, and the shift to electrification will be crucial to securing the future of UK automotive manufacturing.