David Borland, EY UK & Ireland Automotive Leader, comments on the Society of Motor Manufacturers and Traders (SMMT) new car registration figures for November 2023:
“November 2023 saw a 16th successive month of growth for the automotive sector, with over 156,000 new car registrations recorded, representing a 9.5% year-on-year increase. Positively, this was broadly flat to pre-pandemic volumes as the market continues to recover and stabilise.
“There was however an anticipated challenge, with Battery Electric Vehicle (BEV) sales seeing a decline in the month, with a 17.1% fall compared to last year. It would seem this is largely due to the upcoming regulation on Zero Emission Vehicles (ZEVs) that starts next year, which is prompting manufacturers to take measures to limit their exposure to penalties. This was the first year-on-year fall for BEVs since April 2020, the first full month after the first lockdown of the pandemic.
“Despite the top line growth, the mixed channel trend continues with fleet sales growing at over 25% whilst private sales continued to face challenges with a 5.9% decline. This is because fleet continues to be the target for BEV sales whilst consumers are still navigating headwinds such as high interest rates in the run up to the holiday season.
“In further positive news, growth continued on the supply side as well with manufacturing volumes up 31.6% in October and almost 17% for the year so far, showcasing a promising year for manufacturing with 8 out of 10 months of improvements. As we look ahead, the sustainability of this growth comes into focus, particularly with the impending 'rules of origin' legislation for Electric Vehicles (EVs) scheduled to take effect on January 1, 2024. This milestone poses a crucial question for the industry's future trajectory with potential tariffs that will need to be funded by customers or absorbed in the supply chain, providing yet another challenge to fine margins.”
Manu Varghese, from EY’s UK & Ireland Advanced Manufacturing & Mobility Team, adds:
“The dynamics of used car prices have continued to capture attention, marked by a consistent decline throughout 2023. According to the AutoTrader Retail Price Index, the average retail prices of used cars contracted on a year-on-year basis for the third consecutive month in November, registering a decline of 3.8%. Initially perceived as a temporary correction following the elevated prices witnessed in 2020 and 2021, attributed to supply chain challenges affecting new car availability, this downward trend persists. Despite the current trend, signs of recovery are expected in 2024. The market is dynamic and continues to encourage an optimistic outlook in used car pricing as we move into the next year.”
Forward Look
“In November 2023, the Government made two significant announcements, including the UK Battery Strategy and the Advanced Manufacturing Plan (AMP). These announcements are anticipated to provide clarity and momentum to the domestic auto industry.
“Despite UK automotive’s sustained growth of late, challenges persist for the domestic industry, particularly in relation to the alignment of the Internal Combustion Engine (ICE) vehicle sales ban and the Zero Emissions Vehicle (ZEV) Mandate, both at a time when the UK aims to attract investment in the Electric Vehicle (EV) sector.
“The Office for Budget Responsibility (OBR), recently reported that only 38% of new vehicles sold in the UK in 2027 are projected to be electric, a decrease from the 67% forecast in March, highlighting the magnitude of the challenge facing Original Equipment Manufacturers (OEMs).”
David Borland added:
“Despite the hurdles, the UK car industry continues to strive towards a transition to a zero emissions future. This transition is accelerated by new regulatory targets and Net Zero plans, creating fresh opportunities and avenues for value creation in alternative forms of technology. To ensure the industry’s resilience and prosperity in the future, securing both public and private investment, forging strategic partnerships to mitigate capital risks, and enhancing speed to market will be vital. Furthermore, OEMs and their needs will need to be closely monitored as they balance priorities between maintaining ICE sales, ramping up ZEV sales and ensuring regulatory compliance, particularly with profit margins associated with EVs currently appearing stretched, and residual values continuing to face marked challenges.”
