UK Automotive Output Set for Steep Decline in 2025

The UK automotive industry is expected to face a significant setback in 2025, with vehicle production projected to fall by 15%, marking its lowest output in decades. Despite this decline, the sector saw a positive shift as electrified vehicle output reached a record high in the first half of the year. The drop in overall production is attributed to factors such as trade disruptions, factory retooling for EVs, and reduced demand in key export markets.

The UK’s automotive sector is facing a sharp downturn in 2025, with total new vehicle production expected to drop about 15% to roughly 755,000 units, according to official forecasts by the Society of Motor Manufacturers and Traders (SMMT). This represents a substantial fall from 2024’s output and marks one of the toughest years in decades for the industry.

Mid‑Year Performance: Historic Lows

In the first half of 2025, total production fell nearly 12% to 417,232 vehicles, with car output down 7.3% at 385,810 units and commercial vehicle manufacturing collapsing by 45.4% to only 31,422 units. This begins a trend of steep monthly declines: April output fell 15.8% year-on-year to just 59,203 units, the lowest April since 1952 (excluding pandemic years), and May plunged 32.8% to 49,810 units, the lowest May since 1949.

Overall, this places UK production at its weakest non‑Covid performance since 1953, highlighting a period of sustained pressure on factories.

What's Behind the Slump?

Several major issues have converged:

• US Tariffs & Trade Friction: In early 2025, the US imposed a 25% tariff on UK-built vehicles, particularly affecting luxury marques like Jaguar Land Rover and Bentley. Many paused exports amid uncertainty. A new UK–US agreement reducing the tariff to 10% on up to 100,000 units a year, effective late June, offers partial relief, but volatility remains.
  
• Factory Rebalancing & Closures: Manufacturers are retooling from internal combustion engine (ICE) platforms to electrified vehicle lines, causing temporary shutdowns and lower output. For instance, Stellantis closed its Vauxhall van plant in Luton in April, removing significant commercial vehicle capacity.
  
• Model Transition Challenges & Weak Demand: The transition to EVs has delayed production ramp‑ups during model changeovers. Meanwhile, demand in key export markets like the EU and China has softened, reducing order volumes.
  
• Energy and Cost Pressures: UK auto makers face energy costs up to twice as high as some European peers, undermining competitiveness. Combined with regulatory uncertainty, domestic investment is under strain.
  

Silver Lining: Electrified Vehicles Reach Record First‑Half Share

Amid this downturn, electrified vehicle production delivered the standout performance:

• In the first six months of 2025, production of battery electric (BEV), plug-in hybrid (PHEV), and hybrid (HEV) vehicles rose 1.8% to 160,107 units, taking a record high 41.5% share of all cars produced in the UK.
  
• This share rose from under 40% in early 2024 to over two in five units by mid‑2025, marking an inflection point in the sector’s shift to cleaner powertrains.
  

In January 2025 alone, electrified output reached 42.2% of that month’s vehicles (30,028 units), the highest share since December 2022.

Why Electrified Output Is Holding Up

• Growing EV investments: Nissan, Toyota, JLR and other firms continue heavy investments in assembly lines and UK-based battery and supply chain infrastructure under the government's DRIVE35 strategy.
  
• Government EV incentives: A new £650 million electric car grant, offering up to £3,750 off vehicles under £37,000, is designed to boost uptake, though confusion over qualifying models has limited its early impact.
  
• Increasing compliance pressure: The UK’s Zero Emission Vehicle (ZEV) mandate, set at 28% EV sales in 2025 and rising to 80% by 2030, means manufacturers are prioritizing electrified vehicle production to avoid steep fines (£15,000 per ICE vehicle sold beyond quotas).
  

Looking Ahead: Recovery, Risks & Opportunities

A Modest Rebound Expected in 2026

SMMT forecasts a 6.4% recovery in 2026, lifting output back to over 800,000 units, though this remains well below past ambitions. Annual production may remain in the 850,000–930,000 unit range through the end of the decade, unless new entrants enter the UK market.

Key Drivers for Recovery

• Stabilizing trade flows: The UK–US agreement reducing car tariffs may help resume exports, particularly for premium brands. Meanwhile, agreements with the EU and other markets may salvage lost volume.
  
• Industrial Strategy implementation: The government's DRIVE35 plan includes measures to reduce energy costs, invest in EV charging and battery capacity, and build domestic engineering competitiveness.
  
• Supply chain scaling: AESC's second gigafactory in Sunderland, and growth in wiring harness and e‑axle capacity, may reduce reliance on imported EV components and ease production constraints.
  

Remaining Risks

• Supply shortages linger for critical EV components, with domestic production still ramping up. The lag in battery maker timelines could continue to constrain output.
  
• Policy volatility: Confusion over EV grant eligibility and potential shifts in the ZEV mandate may disrupt planning as manufacturers struggle to forecast demand and margin structures.
  
• Structural competitiveness: If energy costs remain elevated and trade access stays constrained, the UK could lose out to lower‑cost EV hubs like Spain, Turkey or Eastern Europe.
  

Conclusion

UK new vehicle production is expected to fall by around 15% in 2025, sliding to historic lows unseen since the early 1950s outside of the Covid years. Pressures, from trade tariffs to factory restructuring and export downturns, have left manufacturing badly wounded. Yet even in these challenging conditions, electrified vehicle production climbed, reaching a record‑high 41.5% share in the first half of the year.

The journey to recovery will depend heavily on stabilizing trade relations, delivering on EV infrastructure and supply chains, and retaining policy certainty that supports long‑term investment. With these pillars in place, modest recovery is feasible in 2026, but the road back to pre‑2020 peaks remains long and uncertain.

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