UK automotive logistics faces another dip as recovery stalls amid trade and competitiveness pressures

The automotive industry entered 2026 expecting a return to stability after years of disruption, but fresh geopolitical tensions, weakening demand and structural trade challenges have reshaped the outlook. Speaking at Automotive Logistics and Supply Chain UK 2026, S&P Global Mobility's Henner Lehne warned that recovery has been delayed once again, while industry representatives highlighted mounting concerns over EU trade policy and the UK's long-term competitiveness.

Another year of pressure for automotive supply chains

Just months ago, 2026 was expected to mark a turning point for the automotive industry. Instead, according to S&P Global Mobility (which will soon be known as Mobility Global when it’s publicly traded on the NYSE on 1 July), the sector is facing another year of declining volumes and continued uncertainty.

Henner Lehne, vice-president of forecasting and research at S&P Global Mobility, said that 2026 was supposed to be the year of a recovery for the automotive industry. "We were in steady state, and then came the Strait of Hormuz," Lehne told delegates at ALSC UK.

Escalating geopolitical tensions and energy market volatility have forced S&P Global Mobility to revise both sales and production forecasts downward. The UK currently has a total market of 2.4m units, but warning signs are coming from the global outlook. The company has removed around 2.3m units from its global light vehicle sales outlook for 2026, forecasting 2.7m units for 2027, and cut production forecasts by 1.9m units. Lehne said the three core drivers of this have been the severe disruption of the Middle Eastern new car market, pressure on vehicle “additional affordability”, including direct and indirect impacts of higher energy prices on consumers, and continued weakness in the Chinese new car market since incentives have run out.

While fuel price increases have been visible at the pump, Lehne cautioned that the full industrial impact of higher energy and feedstock costs has yet to work through automotive supply chains.

"One thing we see in Europe is that these shocks have not even arrived yet because we're still living off inventory," he said. "Only now will we actually get the exposure to price increases."

Higher energy costs, inflationary pressures and the prospect of rising interest rates are expected to weigh further on vehicle affordability and consumer demand.

European automotive production faces structural reset

Beyond short-term geopolitical pressures, Lehne argued that the European automotive sector is undergoing a deeper structural adjustment.

Looking at west and central Europe, including the UK, S&P forecasts light vehicle demand of around 15.3m units this year, significantly below historical norms. The optimistic case, if the Strait of Hormuz fully opens now, triggering a recovery in vessel traffic and supply chain normalisation, would see this figure rise to 15.5m, while the pessimistic scenario forecasts light vehicle demand of just 14.7m if the strait is closed through to July, which would be the lowest forecast since 2022.

On top of this, the disappearance of affordable A- and B-segment vehicles due in part to the cost of compliance with emission regulations, combined with changing consumer purchasing patterns and outside Europe offshoring, has reshaped Europe’s vehicle production outlook. Looking at the UK specifically, its share used to be 10% in the production footprint of Europe, but is forecast to drop down to 4$ by 2030.

“From that point of view, there is a clear trend of deindustrialisation,” Lehne said.

Looking at capacities globally, Europe continues to face substantial excess manufacturing capacity, with many plants operating far below optimal utilisation rates.

Globally, Lehne said vehicle manufacturers produced around 93m vehicles last year against installed capacity of approximately 158m units.

"We're facing a major overcapacity issue," he said. “We were at a utilisation just above 50%, while countries like Japan and Korea had around 80%, and normally 85% is the profitable way to run a plant.”

The challenge is particularly visible in Europe, where manufacturers continue to close facilities, reduce shifts and reassess future investments. Some OEMs are even considering opening unused production capacity to Chinese manufacturers as they seek ways to improve utilisation rates.

He used the example of the Fiat plant in Mirafiori, Italy, which runs at 9% utilisation of the original installed capacity. “It’s just kept alive to have people go to work, it’s probably government funded, it’s a very bizarre situation. Therefore, you get the discussion which also happens in Germany where the car makers say, ‘do we open up the factories for some Chinese OEMs to come in and actually take capacity and utilise them, because they’re coming here anyways, so at least we keep the labour here’.”

He said there is a clear reason for that kind of thinking. “Even for VW, the Zwickau-Mosel plant at the moment is utilised and runs at 82%, but for the next two years, most of the EVs will go out and then there’s only the Audi Q4 left and maybe another Q Audi, and then it’s running at 40% utilisation. So, what do you do? Do you open it up for your Chinese partners, and would they be willing to come? These are all considerations and gaming which are going on in the industry right now,” he said.

He added: “Is that enough, or do we actually need to pull out even more to shrink to healthy levels or open the door for others to come in, if this is even possible?”

UK vehicle manufacturing continues to shrink

The UK remains particularly exposed to these trends. Lehne highlighted a long-term decline in both vehicle and powertrain production, forecasting UK light vehicle output to stabilise at just over 1m units annually, compared with peaks approaching 2m units less than a decade ago. Engine production has fallen even more sharply, from around 2.4m units historically to approximately 700,000 units today.

At the same time, questions remain around battery manufacturing capacity and localisation ambitions across Europe. "The irony is that the region which is so good in manufacturing and engineering is somehow not capable of setting up battery manufacturing," Lehne said.

He warned that Europe remains heavily dependent on Chinese expertise and supply chains for battery production, creating additional complications for future industrial policy and localisation requirements. 

Trade tensions create fresh uncertainty

While market fundamentals remain challenging, UK manufacturers are also monitoring a rapidly evolving trade environment.

Alessandro Marongiu, head of trade policy at the Society of Motor Manufacturers and Traders (SMMT), warned that proposed EU industrial policies could create significant disadvantages for UK-built electric vehicles.

The European Commission's proposed Industrial Accelerator Act (IAA) would introduce stricter "Made in Europe" requirements for vehicles accessing incentives, procurement programmes and emissions-related credits.

According to Marongiu, current proposals would effectively exclude many UK-produced low and zero-emission vehicles from key EU support mechanisms.

"All UK assembled low and zero-emission vehicles will be excluded from corporate fleet incentives, from CO₂ super credits, from private incentives and from public procurement contracts," he warned. “This is highly impactful and it can be highly damaging to UK manufacturing.

The issue is particularly significant given the scale of UK-EU automotive trade. More than half of UK vehicle exports are destined for European markets, while electrified vehicle trade between the UK and EU has grown from approximately £4.5 billion in 2019 to £24.5 billion today.

“However, if reciprocity is taken into account, and the IAA is modified as we hope, then even setting the bar very high, the UK would be included. There's virtually no other country in the world offering more reciprocal treatment to EU finished vehicles and parts than the UK.”

Marongiu also highlighted concerns around stricter rules of origin requirements under the UK-EU Trade and Cooperation Agreement from 2027, which could expose some battery electric vehicles and plug-in hybrids to tariffs if localisation thresholds cannot be met.

"We need pragmatic solutions here and we need them urgently," he said.

Chinese competition accelerates across UK and Europe

The UK market is also becoming an increasingly important destination for Chinese manufacturers.

According to Lehne, Chinese brands continue to expand aggressively across Europe, with the UK emerging as a key growth market. He suggested current forecasts may even underestimate the pace of expansion if pricing competition intensifies further. "There is escalation potential definitely in there," he said.

SMMT data presented by Marongiu showed Chinese-origin vehicles now account for more than 18% of UK new car registrations, reflecting the growing influence of Chinese OEMs across the market.

The challenge for policymakers, he argued, is balancing open trade with long-term industrial competitiveness.

"We need to find balance," Marongiu said. "We need to find solutions to make sure that this is not a one-way street."

Logistics remains a competitiveness priority

Although market demand and trade policy dominated discussions, logistics competitiveness remains a critical factor in the UK's long-term industrial outlook.

Automotive Logistics & Supply Chain United Kingdom

17-18 June 2026 | Mercedes Benz World, Weybridge, UK

Ben Garratt, acting policy director at Logistics UK, argued that efficient supply chains are fundamental to productivity across automotive manufacturing.

"The performance of the logistics sector has a particular bearing on the efficiency and productivity of the automotive sector," he said.

Garratt highlighted ongoing challenges around infrastructure capacity, freight connectivity and skills shortages, particularly in transport operations and vehicle maintenance.

He also pointed to analysis suggesting improved logistics performance could deliver up to £8 billion annually in productivity-led economic growth across the wider UK economy.

"The more complex the supply chain is, the more opportunities there are either to push up productivity and performance or pull it down," he said.