- Cautious optimism of Q1 triggers revised 2 million+ forecast
- ZEV mandate could cause a drop in new vehicle supply
- Cox Automotive’s new Insight Quarterly (IQ) includes forecasts alongside industry insight
A strong start to the UK’s new car market in 2024 has brought with it reasons for caution, according to Cox Automotive’s new periodical, Insight Quarterly (IQ).
Positivity stems primarily from the relatively healthy start to the year for new car registrations, which were up 10.4% year-on-year in Q1. However, questions remain about the ZEV mandate's effect on the sector, what will happen after the next general election, and when the market will finally return to its pre-pandemic normality.
Based on the activity and performance witnessed in Q1, Cox Automotive has adjusted its baseline forecast for 2024, now published in IQ, upwards and now projects registrations will surpass two million cars, with a potential upside scenario seeing it stretch beyond 2.2 million.
That rethink is contingent upon a more robust performance in the second half of the year buoyed by signs of economic stabilisation alongside the imperative for manufacturers to gain market share while meeting ZEV mandate obligations.
Philip Nothard, Insight Director at Cox Automotive, thinks the 10.4% statistic is good news but is still 17.9% behind the pre-pandemic average for registrations recorded between 2000 and 2019.
“Double-digit growth in the first three months is no mean feat and cannot be easily dismissed,” he added. “But it trails far behind figures before the pandemic and is, indeed, 22.2% behind the figure for 2019 alone.
“So, the numbers are charged with positivity, but the market is a long way off what could reasonably be characterised as ‘normal’.”
The first-quarter growth numbers are compounded by the market share figures of private registrations. Standing at 40.4%, they are 8% lower than the figure year-on-year.
Philip said: “That’s undoubtedly a bitter pill to swallow for OEMs and dealers as private registrations are where the healthier margins can be found, as was demonstrated during the supply constraints of the pandemic.
“On top of that, consumer doubts about the transition to electric, perhaps fuelled by EV affordability and infrastructure fears, persist. Steadfast support from fleet operators has played a crucial role in driving the transition to an electrified market and the recovery of sales volumes. These advancements would undoubtedly be less substantial without their continued backing.”
Q1 also marked the launch of the ZEV mandate in the UK, a regulation requiring manufacturers to sell an increasing percentage of zero-emission vehicles (ZEVs) each year until the ICE ban deadline – provided it doesn’t change again – in 2035.
According to Philip, manufacturers can avoid the hefty per-car fines enforced by the mandate in a few ways, including borrowing a limited number of ZEV ‘allowances’ until 2026. This gives OEMs some breathing room if they struggle to meet the target in a particular year. However, the borrowing is capped and comes with a considerable 3.5% annual interest fee to motivate compliance.
This is one avenue available to manufacturers hoping to soften the impact of the mandate, but there is talk they could go further. For example, one way to achieve the 22% figure is to simply reduce volume in the UK market.
In Q1, EV registrations stood at 15.5% of market share, a year-on-year increase of 0.1%. The needle has moved, but only ever so slightly and private buyers remain reluctant to go electric.
Philip said: “The market is moving in the right direction; a gradual recovery could arguably be said to be underway. However, it's important to acknowledge that significant challenges remain. We're not quite out of the woods yet, and a full return to pre-pandemic levels might still take some time.
“With the UK’s ICE ban deadline U-turn, a palpable lack of help for the sector in the most recent budget, such as the government addressing the VAT discrepancy between domestic and public charging, it may well be that an unintended consequence of the ZEV mandate could be a drop in the supply of new vehicles. Manufacturers looking at the UK market may change tack and opt to put their cars into less stringent markets in other parts of the world. It’s still early days, but clarity on how the sector will react in the inaugural year of the mandate has yet to materialise.”
At a critical time for UK automotive, growth continues to be driven by fleet investments while manufacturers push for EV demand.
Philip concluded: “With an election looming, we will have to wait and see whether any new administration delivers the help needed to accelerate our sector’s overdue recovery.”
Cox Automotive’s IQ is available now to view here. It is a merging of Cox’s annual Insight Report and previous periodical: AutoFocus. Including Philip Nothard’s new and used UK market forecasts and articles from noted industry experts, it is designed to aid OEM, fleet and dealer decision-making.