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The government will water down rules which demand car makers switch to making battery-powered cars after pressure from the industry.
But the move comes too late to save Vauxhall’s van plant in Luton, where 1,100 jobs are at risk.
Ministers have agreed to review rules which say at least 22 per cent of cars made in British factories must be battery-powered. Breaking the rules means either buying credits from competitors who are beating these targets or paying a fine of £15,000 per car.
After warnings from car bosses that low customer demand would make meeting the targets impossible, leading to factory closures or job cuts, ministers will consult with car makers to allow them more time to hit their targets while still making more electric cars in the years to come.
The news comes as the owner of the Vauxhall brand said it plans to close its Luton factory, which makes Vauxhall Vivaro vans. The plant was due to be overhauled next year to make electric models.
But Stellantis, the huge car maker which owns the brand, had also warned that the site was at risk if more was not done to encourage the public to buy electric vehicles, and after a tough year it has decided to pull the plug.
Car makers have been battling high energy costs after Russia’s invasion of Ukraine, and they have had to pass on costs to customers. They did this very successfully in the wake of the pandemic when factory closures meant a shortage of cars.
But now, as factories have been churning out more vehicles, they are met with customers feeling the pinch of higher energy bills and mortgage payments. Efforts to sell more electric cars have also stalled. EVs cost more to make because of the expensive materials needed to produce their large batteries.
Stretched customers are choosing them at a slower rate, meaning car makers have had to slash their prices, eating away at margins.
Head of financial analysis Danni Hewson at stockbroker AJ Bell said: “The decision not to follow through with further investment at the Luton plant will be a blow and is an indicator that car makers feel backed into a corner.
“The big question will be how to persuade reluctant motorists to make the shift. Lower prices are clearly one option and that is already impacting car makers’ profits.
“But for some drivers making the switch just doesn’t make sense because they don’t have charging options at home or feel the current charging infrastructure where they drive isn’t up to scratch.”
Luton is one of two large plants Stellantis owns in the UK; the other being in Ellesmere Port. This second site specialises in smaller vans like the Vauxhall Combo after it stopped making the Astra car in 2021. Van making will now be done solely at the Ellesmere Port site, where Stellantis hopes to relocate many of the Luton jobs.
The plants export their vehicles under the Opel brand around Europe, as well as making vehicles under Citroen and Peugeot brands, which Stellantis owns.
Last month, Stellantis said that sales fell by 27 per cent, or €12bn in the three months to the end of September compared to a year earlier.
The company is the product of the merger of several large brands, including Citroen, Peugeot, Chrysler and Fiat.
It competes with other giants like Volkswagen and Toyota.
A government spokesperson said: “We have a longstanding partnership with Stellantis and we will continue to work closely with them, as well as trade unions and local partners on the next steps of their proposals.
“The government is also backing the wider industry with over £300m to drive uptake of zero-emission vehicles and £2bn to support the transition of domestic manufacturing.”
