UK automotive faced a tough 2025, but EV growth, renewed production momentum and smarter strategy show the sector is shifting from survival to recovery.

Published: 3 February 2026
Author: Jonathan Smart

The UK automotive sector has just come through what the SMMT rightly calls one of the toughest years in a generation and the numbers are sobering.

Total vehicle production fell 15.5% in 2025, with just 764,715 cars and commercial vehicles leaving UK factories. Car output dropped 8%, while commercial vehicle production collapsed by a staggering 62.3% as plants consolidated and supply chains buckled under disruption.

That is not a cyclical wobble. It is a stress test and reflects the perspectives we are seeing from in-house lawyers, as shown in our recent article, Automotive supply chains: A new era of dispute risk.

Cyber disruption, trade uncertainty, particularly across the Atlantic, and the painful reality of restructuring for electrification all hit at once. Add in persistently high UK energy costs and you have a sector that has spent 2025 firefighting rather than investing.

And yet, buried in the gloom is something the UK automotive industry has not had for a while: momentum.

December mattered and not just statistically

December production figures might look like a footnote, but they matter. Car output rose 17.7% year‑on‑year, ending four months of decline and signalling that the production engine is starting to turn again. This wasn’t a blip driven by incentives or stock clearance. It reflected new models entering production and manufacturers moving from transition to execution.

Electrification, often portrayed as a drag on UK competitiveness, is in fact becoming a source of resilience. Production of battery electric, plug‑in hybrid and hybrid vehicles rose 8.3%, reaching a record 41.7% share of total output and represents a structural shift, not a trend line.

The UK is no longer “getting ready” for EVs. It is building them at scale. Just as important the workforce is adapting  as our own employment team reports Driving EV innovation: Talent & law.

Exports still define the sector and that cuts both ways

UK automotive remains fundamentally export‑led. 77.5% of vehicles produced in 2025 were exported, with Europe accounting for over half of that volume. The US remains a critical high‑value market, but exports there fell sharply amid tariff uncertainty, underlining how exposed the sector remains to geopolitical drift rather than industrial failure.

This matters because manufacturers are increasingly building cars close to their markets; localisation not globalisation is the new world order Automotive supply chains: A new era of dispute risk. If the UK wants production volume, it needs trade certainty, not just trade ambition. Looming changes to Rules of Origin under the Brexit framework, alongside increasingly protectionist “Made in Europe” rhetoric, risk turning friction into a permanent feature rather than a transitional hangover.

For a sector that already competes with some of the highest industrial energy costs in Europe, that would be self‑defeating.

The recovery path is visible, but not guaranteed

The SMMT’s outlook for 2026 is cautiously optimistic. UK car production is expected to return to growth, rising by more than 10% to around 790,000 units, with overall light vehicle production potentially reaching 824,000 units. Under the right conditions, the industry could reach one million vehicles by 2027.

Those conditions are not abstract. They are practical and well‑rehearsed:

• competitive energy costs that do not penalise manufacturers for electrifying;
• delivery, not just announcement, of the Industrial and Trade Strategies;
• supply‑chain support that recognises UK automotive is only as strong as its tier‑two and tier‑three base;
• and a healthy domestic market, because you cannot anchor production on exports alone.

Significant investment has already been committed, public and private, including government support through the DRIVE35 programme. But capital is mobile. If the UK cannot translate strategy into certainty, that investment will quietly re‑route elsewhere.

This is not a nostalgia industry, it’s an advanced manufacturing test case

Too often, automotive is framed as a legacy sector asking for protection. The reality is the opposite. UK automotive is a bellwether for whether Britain can compete in advanced, capital‑intensive, net‑zero manufacturing at all.

If we can get this right; aligning industrial strategy, energy policy, skills and trade automotive becomes a growth engine again. If we get it wrong, the decline will be polite, gradual and irreversible.

The good news? The models are coming. The factories are retooling. The workforce is adapting. The recovery is no longer hypothetical.

The question for 2026 is brutally simple: will policy keep up with production or get in its way?