Ministers are poised to water down rules around electric vehicles (EV) manufacturing amid growing concerns within the sector that the current plans could scuttle the sector.

Car makers have been warning the Government that the current rules have set EV sales targets too high, which is putting jobs at risk, and have called for changes to the current mandate.

It comes as Stellantis, the owner of Vauxhall, announced it would be closing its Luton plant just months after it announced the site would start producing its new fleet of electric vans.

Stellantis said the UK’s “challenging” EV quota system played a “significant part” in the decision, the FT reported.

Business Secretary Jonathan Reynolds will use a speech at the Society of Motor Manufacturers and Traders’ dinner on Tuesday evening to launch a new consultation into reforming the rules in response to concerns from the sector.

New “flexibilities” are expected to be looked into to reduce the financial penalties applied to companies that are unable to meet the new targets.

Car makers have said that to avoid fines they are being forced to discount new vehicles substantially, or subsidise rival companies, such as Tesla and the Chinese firm BYD, which build only electric vehicles.

During an appearance in front of the Business and Trade Committee, Reynolds acknowledged particular concerns of van manufacturers as part of the shift to electric vehicles and insisted he and Transport Secretary Louise Haigh “get the seriousness and the urgency of the situation”.

He told MPs: “Different OEMs (original equipment manufacturers) have different particular issues, particularly if they are in both van and passenger vehicle manufacturing.

“I think everyone agrees on the destination, but at the minute – in a way which doesn’t in any way change how many EVs there will actually be on the road – we have to accept and have to analyse whether the environment in the UK for automotive manufacturing is one that’s going to get us to the destination in a way which keeps those jobs and industry in the UK.”

Current quota

Under the current mandate, at least 22 per cent of new cars sold by each manufacturer in the UK this year must be zero-emission, which generally means pure electric.

The threshold is due to rise annually with the Government committed to bringing the ban on the sale of new petrol and diesel cars and vans forward from 2035 to 2030.

Failure to abide by the rule or make use of flexibilities – such as buying credits from rival companies or making more sales in future years – will result in a requirement to pay the Government £15,000 per polluting car sold above the limits.

Manufacturers have insisted that demand for EVs has not met the levels expected when the rules were originally drawn up.

He added that the industrial policy that the Labour Government has inherited is “incentivising imports over domestic production”.

“And I don’t think that is any kind of special pleading from industry, because we’ve seen the scale of what is happening,” Reynolds said, adding: “Stellantis is part of that.”

Vauxhall’s owner Stellantis announced it is planning to shut the Luton site next April, putting more than 1,100 jobs at the van-making factory at risk. Stellantis said it is hoping to transfer “hundreds” of jobs to the group’s Vauxhall site in Ellesmere Port.

It is now in consultation with unions and employees over the proposals, which will also see it invest £50 million into the Ellesmere Port factory.

The decision represents a significant u-turn by the company, which had announced earlier this year that it would begin building electric vans from its Luton site from the start of 2025.

Stellantis said it will “work with local government and local employers to identify new employment opportunities within the Luton area for Stellantis employees who might be impacted by this proposal if it goes ahead”.

A Government spokesman said: “While it’s encouraging to see Stellantis investing in the future of its Ellesmere Port plant, we know this will be a concerning time for the families of employees at Luton who may be affected.

“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.”

Last year, Stellantis warned of “significant job losses” in the UK if the Brexit deal was not renegotiated.

It is the fourth largest carmaker in the world, employing more than 5,000 people in the UK. Its other brands include Citroën, Peugeot, Fiat, Alfa Romeo and Chrysler

In 2021, it committed to making electric vehicles (EV) at its Ellesmere Port and Luton plants.

A spokesman for Unite said: “The proposal that has been tabled today has been a complete slap in the face for our members in Luton, where Vauxhall vehicles have been manufactured for 120 years. Whatever the positive benefits this plan may have for Ellesmere Port, that is not acceptable.

“We stand ready to support our members in doing whatever we can to ensure that historical vehicle manufacturing is maintained in Luton and we call on the government to do the same.”