By Professor David Bailey
27th October 2025

UK auto’s low volume crisis in 2025.
Implications for suppliers

UK auto’s low volume crisis in 2025. Implications for suppliers.

The UK automotive industry is enduring a low volume crisis. Overall vehicle manufacturing declined markedly, dropping 12% year-on-year in the first half of 2025 to 417,232 units, with car production down about 7.3 % and commercial vehicles down a whopping 45.4 %.

This was the worst non-COVID performance since 1953 (yes you read that correctly). The export orientation of UK auto manufacturing has added to the pressure: given that the bulk of UK built vehicles are headed overseas then weakness in global demand, supply chain frictions and trade issues have hit hard.

One key destabiliser has been trade and tariff uncertainty, especially from the US which is a major market for UK auto exports. Tariffs of 10% there and a quota mean that British made cars face higher costs and risks.

On the cost side, the retooling to electrified power-trains (EVs/hybrids) is still complex and costly. Moreover, UK manufacturers – and by extension many suppliers – face high energy costs pressures, and competitiveness challenges compared to lower-cost locations.

The transition burden of shifting from internal combustion engine platforms to electrified ones involves capital expenditure, workforce training, and new supply lines (especially regarding batteries/battery components), all of which will weigh on margins and supplier contracts.

For suppliers specifically, this means fewer overall units built, more variability in model mix (which makes forecasting harder), more pressure on cost-competitiveness, and a need to pivot towards new technologies (EV components, software, battery systems and hybrids) if they’re going to stay in the game.

Key challenges for suppliers

This volume decline means much greater order pressure. With lower overall vehicle production, demand for certain legacy components will shrink. Tier-1 and Tier-2 suppliers providing traditional ICE (internal combustion engine) parts will feel this keenly.

The ongoing model transition turbulence sees assemblers retooling, changing platforms, and sometimes temporarily pausing production or shifting capacity, and also looking for hybrids given slower than expected take up of pure EVs. That creates ‘lumpy’ demand for parts from suppliers, with spikes then drops,  which complicates supplier planning.

On the flip side, components for hybrids, electrified powertrains, battery systems, high-voltage wiring, software and electronics integration are more in demand. Suppliers that can reposition into these areas can secure future business.

Export risks and rules-of-origin issues are challenging. Since many UK builds are exported, suppliers are exposed to trade rules, tariffs and regulatory changes. One wrong turn in sourcing can make a supplier’s part ineligible for favourable tariff treatment.

There is a need for investment and innovation. Suppliers will need to invest in new capabilities (e.g., electric motor manufacturing, battery pack modules, power-electronics) or face losing business. OEMs increasingly expect their supply-chain to move up the value chain.

Cost competitiveness remains key. With higher energy and input costs in the UK compared to major competitor locations, UK-based suppliers have to make big efficiency gains or find niche specialisms to stay viable.

A couple of positives (yes, really)

Despite the gloom, there are a few glimmers of positivity worth highlighting.

Firstly, export trade remains substantial. The UK automotive sector still generates big trade volumes. In 2024 UK automotive imports & exports together topped about £115 billion. The UK remains a big exporter especially in the premium and luxury markets. We underestimate that at our peril.  For suppliers, this means that despite headwinds, there is still a large base of production and export business — the ecosystem hasn’t vanished completely.

Secondly, the electrified vehicle share is growing. Although overall output is down in 2025, the share of electrified vehicles (hybrid, plug-in hybrid, full battery-electric) is rising. In the first half of 2025, electrified vehicles across all categories accounted for over 40% of UK car production (160,107 units), up from earlier years.

That shift opens up opportunities for suppliers which specialise in EV drivetrains, battery modules, power electronics, wiring harnesses for high-voltage and so on. In other words: the volume may be down, but the required content per vehicle (for electrified vehicles) is higher, which can be good news for suppliers who are aligned with where the market is moving.

Outlook and what to watch for in 2026

For suppliers looking at next year, some key things to consider include:

Monitor government policy carefully. With so much dependent on policy, and regulatory and incentive regimes (EV grants, charging infrastructure, supply chain investment), suppliers need a clear picture of what the government is trying to go. The government inherited a policy mess but has made some progress on this (such as bringing back grants for EVs and giving more flexibility in mandate rules).

Battery & component localisation. As more electrified vehicles are built, the supply chain around batteries and modules becomes crucial. UK suppliers who position for this could secure long-term volume.

Cost and energy efficiency. Government support on energy costs isn’t going to arrive before 2027 sadly. Meanwhile UK-based manufacturing across the value chain need to get costs down, reduce waste, and embrace automation, or risk being out-competed internationally.

Flexibility and diversified customer base. With volumes uncertain, suppliers can benefit from being more agile, serving multiple assemblers, exploring after-market or other adjacent markets, and diversifying beyond traditional ICE platforms.

Skill and capability upgrading. Investing in R&D, digital manufacturing, software integration (such as for connected vehicles or EV power-train control) can help move up the value chain rather than getting stuck with low-margin commoditised parts.

In summary

The UK automotive sector is in a low volume crisis amidst weaker volumes, rising costs, trade and regulatory head-winds. For suppliers, it is a hugely challenging environment. But it is not a hopeless one. The transition to electrified vehicles and continuing export flows mean that there are real opportunities for those suppliers willing to adapt.

In the short term, that means doubling down on electrified component capability, sharpening cost competitiveness, broadening the customer base, and monitoring government policy and trade developments carefully. The market may be down this year, but the foundations for the future shape of the industry are being built now.

Professor David Bailey is Professor of Business Economics at the Birmingham Business School.