Industry Overview

The automotive world is reinventing itself, blending technology, sustainability and global demand to create the next generation of mobility.

The automotive industry is one of the UK’s most complex and interconnected sectors built on high‑value manufacturing, long supply chains, and “right‑first‑time” delivery to customers who expect quality, safety and reliability. Today’s vehicles are increasingly software-defined, data‑enabled and electrified, which is reshaping everything from product design and production planning to aftersales, warranty, and customer experience.

The transition is not only technological it’s commercial and operational. UK new car demand is growing, with the market reaching 2.02 million registrations in 2025, and nearly half a million BEVs registered in the year. Yet the move to electrification, new compliance regimes, evolving trade rules and shifting consumer expectations means automotive leaders must balance cost, speed, resilience and trust across every part of the value chain.

Industry Challenges

The challenges are real, the pace is fast, and the stakes are high.

01
Delivering the EV transition while meeting rising ZEV compliance targets
The UK’s ZEV mandate (under the Vehicle Emissions Trading Schemes Order) sets rising annual targets for zero‑emission registrations 28% in 2025, 33% in 2026, and 80% by 2030 for cars. This intensifies pressure on OEMs, networks and supply chains to accelerate EV sales, manage mix, and avoid compliance cost exposure.
02
Scaling battery supply and domestic manufacturing capacity fast enough
Battery demand is projected to grow rapidly, with UKRI analysis forecasting UK battery demand reaching ~160 GWh by 2035, with automotive accounting for circa 90% of UK demand. At the same time, UK competitiveness depends on attracting and delivering gigafactory investment; the UK Gigafactory Commission warns the UK risks falling behind competitors without coordinated action to secure capacity and supply chain depth.
03
Trade exposure and “rules of origin” thresholds (and the 2027 cliff edge)
The UK and EU agreed to extend transitional rules of origin for EVs and batteries until the end of 2026, avoiding near‑term tariffs, but stricter thresholds apply from 1 January 2027 (e.g., higher UK/EU content requirements for vehicles and battery components). This creates a strategic imperative to localise battery content and supply chains to protect export competitiveness into the UK’s largest trading market for vehicles.
04
Cyber risk and operational disruption in connected manufacturing
Cyber security is now a board‑level resilience issue. The NCSC highlights that cyber incidents can disrupt real‑world operations and that the UK faced a sharp increase in nationally significant incidents in the latest reporting period. Automotive has already seen production impacts linked to cyber incidents (including temporary halts at major employers, as reported in industry coverage).
05
Supply chain fragility especially semiconductors and critical components
Vehicle complexity continues to increase reliance on semiconductors, while industry analysis notes the automotive sector’s exposure to chip supply constraints and multi‑tier dependencies (often beyond OEMs’ direct contracts). More broadly, S&P Global Mobility has warned of renewed risk of shortage in mature node chips that are critical to automotive applications.
06
Skills and capability gaps for electrification, software and advanced systems
Workforce readiness is becoming a delivery constraint. The IMI reports 66,788 EV‑qualified technicians (Q1 2025) versus a need for 155,000 by 2035, indicating a substantial upskilling requirement across service, repair and recycling. UK competitiveness research also flags availability and quality of labour and supply‑chain resilience as key factors shaping the sector’s international position.
07
Production volatility and investment confidence during model transitions
UK production has faced headwinds from trade disruption and uncertainty, with forecasts cited by SMMT anticipating 2025 output falling to circa 755,000 units, before a potential recovery in 2026 as new models arrive. Maintaining stable programmes while transitioning platforms (ICE to BEV, software architectures, new battery chemistries) increases complexity and cost of changeover.