The closure of the Vauxhall van-making plant in Luton puts 1,100 jobs at risk, as the UK government adjusts electric vehicle production rules under pressure from the car industry.

The UK government has announced plans to ease regulations requiring car manufacturers to switch to producing electric vehicles (EVs) in response to mounting pressure from the automotive industry. However, the move comes too late to save Vauxhall’s Luton factory, where 1,100 jobs are now at risk.

In a significant shift, ministers have agreed to review the rules mandating that at least 22 per cent of cars produced in British factories must be battery-powered. Under the current system, manufacturers who fail to meet the target face steep fines of £15,000 per car, or the option to buy credits from competitors who have surpassed the goal.

The decision to ease these rules follows warnings from car industry leaders that meeting the target was becoming increasingly difficult due to weak consumer demand for EVs. With higher energy costs and inflation weighing heavily on customers, manufacturers have struggled to sell electric models in the numbers required to hit ambitious targets. As a result, factory closures and job cuts loomed large.

Ministers have pledged to consult with car makers to extend the timeframe for meeting the targets, while still ensuring a gradual increase in the number of electric vehicles produced in the coming years.

Meanwhile, Stellantis, the global automotive giant that owns the Vauxhall brand, has confirmed the closure of its Luton plant. This facility, which produces the Vauxhall Vivaro vans, was originally scheduled to undergo a significant overhaul next year to switch to making electric vehicles. However, Stellantis has now decided against further investment in the plant, citing the challenging economic conditions and slow uptake of EVs by consumers.

The closure marks a blow to the UK’s car manufacturing sector and adds to the growing concerns about the future of the industry. Stellantis, formed through the merger of brands such as Peugeot, Citroen, and Fiat, has warned that the public’s reluctance to embrace electric cars is undermining the profitability of its operations. The company had hoped the Luton site would be converted to produce electric vans, but after a challenging year for the car industry, it has opted to close the factory instead.

The decision comes amid a backdrop of rising energy prices and ongoing economic strain following the Russian invasion of Ukraine. These factors have made electric vehicles more expensive to produce due to the high cost of materials needed for their large batteries. At the same time, with households feeling the squeeze from higher energy bills and mortgage payments, car buyers have been reluctant to switch to electric models, which still tend to carry a premium price.

The impact of this shift in consumer behaviour has been particularly hard-felt in the UK, where carmakers have struggled to maintain margins. Stellantis has had to reduce prices to try and drive demand, but this has put further pressure on their profitability. Danni Hewson, head of financial analysis at stockbroker AJ Bell, commented, “The decision not to proceed with further investment at the Luton plant will be a blow, and is an indicator that carmakers feel backed into a corner.”

Hewson went on to highlight the challenge of persuading reluctant motorists to make the switch to electric vehicles. For some, the lack of home charging options or inadequate charging infrastructure while on the road remains a significant barrier to adoption. As carmakers face these hurdles, it’s clear that more work is needed to make the transition to EVs a smoother and more appealing process for consumers.

The closure of the Luton plant also raises concerns about the future of jobs in the UK’s automotive sector. Stellantis has said it will try to relocate many of the Luton workers to its Ellesmere Port plant, which is now focused on manufacturing smaller vans like the Vauxhall Combo, after ceasing production of the Astra in 2021. However, with the Luton plant’s workforce of 1,100 employees at risk, it remains to be seen how many will be able to find new roles within Stellantis.

The Luton factory is not the only one affected by Stellantis’s shift in strategy. The company’s UK plants also produce vehicles under the Opel, Citroen, and Peugeot brands, all of which are exported around Europe. Stellantis has also warned that its overall sales fell by 27 per cent in the three months to September compared to the previous year, resulting in a €12bn loss.

The company’s struggles reflect wider challenges facing the automotive industry, as manufacturers navigate high production costs, shifting consumer preferences, and stricter environmental regulations. With the UK government’s recent decision to soften electric vehicle production targets, it remains to be seen how the sector will adapt to the changing landscape, and whether more factory closures and job losses will follow.