Cox Automotive warns that the pressure on car manufacturers to meet Zero Emission Vehicle (ZEV) mandate targets will create an "unrealistic and unnatural market" with potentially damaging consequences for residual values.
The automotive research firm predicts market volatility in the final quarter of 2024 as manufacturers scramble to meet the ZEV mandate, which will significantly influence their strategic and tactical decisions.
While Cox Automotive's revised forecast for 2024 predicts 2.02 million new car registrations, a 6.1% increase compared to 2023, it's still a 2.07% decrease from the previous baseline forecast. This reflects the volatile performance recorded by the Society of Motor Manufacturers and Traders (SMMT) in the first two quarters of the year and the expected disruption in Q4.
Philip Nothard, Cox Automotive's Insight Director, explains: "We remain confident that our forecast of two million registrations for the full year is realistic. However, how this number will be achieved is a cause for concern."
Nothard highlights the pressure on manufacturers to comply with the ZEV mandate, which could force them into extreme measures to increase EV sales. This could include aggressive discounting strategies for fleet and retail sales, or limiting the availability of petrol and diesel vehicles to push consumers towards EVs.
"Several prominent manufacturers have made it clear that non-compliance with the ZEV mandate is not an option," says Nothard. "But with EV sales falling short of where they need to be, they have limited options to meet their pledge."
This push towards EV sales could create an "unrealistic and unnatural market", warns Cox, with far-reaching implications for the long-term health of the UK car industry. These consequences could include:
Lower Residual Values: Heavily discounted EVs will flood the used market in the next 12-36 months, leading to unpredictable and potentially lower residual values.
Manufacturer and Dealer Profitability: The aggressive pricing strategies necessary to meet ZEV targets could impact manufacturer and dealer profitability.
Consumer Choice: The focus on EVs may limit the availability of petrol and diesel models, potentially impacting consumer choice.
Nothard emphasizes the difficult position car manufacturers find themselves in: "They're under immense financial pressure, facing increased competition, and carrying the responsibility to accelerate the transition to zero-emission motoring. They have little choice but to push hard to make their EV products appealing to buyers, be it through financial incentives or by limiting the alternatives."
Cox Automotive's full report on UK new car forecasts is available to view on their website. With the ZEV mandate deadline looming and no government support mechanisms in sight, the automotive industry faces a challenging final quarter of 2024, potentially unlike anything seen in over a decade.