Recently published data suggests new passenger car sales in Germany, France, Spain, Italy and the UK have dropped from their post-COVID recovery in 2021.
Reductions of 11% to 20% in new vehicle registrations in the year up to July of this year have been experienced throughout the region, relative to the same period in 2021.
Sales of internal combustion engine (ICE) and hybrid vehicles contributed to a majority of the shortfall, in contrast to battery electric vehicles (BEVs) continuing to establish themselves within the market.
An 11% drop year on year compared with 2021 has shown the German market to have maintained itself most effectively of the group, meeting 66% of their previous sales with over 1.4 million new vehicles registered, down from nearly 2.2 million registered in the calendar year up to July 2019.
While the Spanish market saw similar falls to the German market comparing to 2021, Spain has recovered the least since COVID. Having failed to reach 60% of previous sales volumes with less than 500,000 vehicles sold within the first 7 months of this year, in comparison to over 800,000 in 2019.
Italy seems to be slipping furthest from their recovery in 2021, falling over 20% by comparison to the same time last year.
A continuation of this trend could pose significant risks to motor companies with supply chains geared towards the production of ICE vehicles. The increasingly limited shelf-life, diminishing attractiveness, and decreasing overall sales volumes within the market have the potential to create a situation where companies struggle to offload current inventories.
Demand might be shifting further with changes to EV subsidies being announced by the new German coalition.
Since BEV demand is holding by comparison to the rest of the automotive industry, the German government has recently taken this as an indication that it can taper down subsidies within their domestic EV market.
France has shown similar desires in the past and the UK has already ended subsidies altogether for passenger vehicles to focus on different vehicle classes.
As the policy currently stands, subsidies on vehicles under €40,000 will fall in Germany from €6,000 down to €4,500 at the beginning of 2023, then fall again to €3,000 in 2024. Cars priced between €40,000 and €65,000 will have their subsidy reduced from €5,000 to €3,000, with subsidies for cars priced over €45,000 to be terminated at the start of 2024.
Subsidies for company cars and plug-in hybrid vehicles are also to be terminated at the end of the year.
The German Economy Minister Robert Habeck emphasized the Government’s goal of “placing a clear focus on climate protection” as the basis for ending hybrid subsidies. Likely alluding to mounting evidence against the true emission levels of hybrid vehicles.
However, taking this action alongside reducing subsidies for BEVs sends an inconsistent signal to the German population.
While demand may be sufficient for now, the aim of the German government seems to be to transfer demand to BEVs from hybrid vehicles. The act of increasing the costs to purchase BEVs is directly counter to this objective.
By announcing intentions to reduce subsidies it is to frontload BEV demand to before the end of this year. This is likely part of Germany’s attempt to reduce domestic demand for oil products going into winter.
This would likely be seen as a marginal increase in BEV sales in the remaining months to 2023, followed by a sharp decline come January once changes to these subsidies are in place.
This puts further pressure on car manufacturers to update their manufacturing capabilities towards the production of BEVs while demand is high. This could lead to exacerbated supply problems for manufacturers as they try to shift towards significant volumes of BEVs.
When looking at the volatility of the oil market and fuel prices over the last few months alongside the continuously increasing demand for BEVs. It is becoming increasingly clear that demand for ICE and hybrid vehicles has been irrevocably damaged within Western Europe. It will struggle to recover in the face of a EV’s now having all the best new features and the backing of policy at multiple levels of government.
Companies going about business as usual could be caught out when consumer demand for BEVs inevitably overtakes that of ICE vehicles especially when given less opportunity to offload inventories.
The rate at which this occurs will be largely dependent on the availability of charging infrastructure within relevant countries. This is among the primary barriers to adoption and widespread feasibility for electric vehicle usage.
If this can be sufficiently addressed by governments, demand for BEVS could accelerate even further and continue their contribution to the recovery of the automotive industry within Europe.