IQ

Insight

Quarterly

Q4/2024

A considerable 90% of UK new car registrations are imported, reflecting the market's deep dependency on global manufacturers. In 2023 this translated into a record 1.72 million imported units, an 18.6% increase from 2022 and marking the highest import level since 2019. This trend, sustained through 2024, underscores how OEMs' decisions directly influence the vehicles available to UK consumers and fleet operators.

The global shift towards NEVs

Supply and demand mismatches are emerging as OEMs decommission internal combustion engine (ICE) production, to prioritise NEVs. Manufacturers are grappling with the substantial costs and logistical complexities involved in redirecting their production capabilities toward sustainable technologies. For UK consumers, this has led to variability in model availability and affordability, as the supply of specific NEVs has lagged behind demand – while production of desirable ICE vehicles is also constrained.

The impact is particularly pronounced in the UK due to its reliance on imports. While 70% of UK car imports come from the European Union, China's growing footprint in the UK market is notable, accounting for approximately 10% of imports in 2024 – up less than 3% from 2021.

The UK has benefited from expanded trade with regions such as Morocco, Mexico, and South Africa, but for BEVs, the EU remains dominant in UK imports. However, Chinese manufacturers have made significant inroads, securing a 28.9% share of the UK BEV market in 2024. Factors like infrastructure challenges, regulatory hurdles and potential EU tariff hikes, could add pressure to these imports and alter competitive dynamics.

Consumer preferences and market share

The reshaping of the supply chain is evident in the brands gaining and losing market share. Forecasts indicate some stability in new car registration volumes in 2025, albeit still behind pre-pandemic volumes. However, the manufacturers standing to gain or lose, remains to be seen. Established OEMs that have historically dominated the UK market, are experiencing declines in market share and volume. These legacy brands face competition from Chinese manufacturers like MG and new NEV-focused entrants, including BYD, GWM Ora, and Polestar, which have brought lower-priced NEVs to market, appealing to consumers seeking affordability.

This trend is a broader reflection of consumer behaviour and price sensitivity. By 2027, new car registrations in the UK are projected to increase from 1.97 million units in 2024, to 2.16 million, representing a 2.25% share increase. This is still lower than pre-pandemic totals. The move away from ICE vehicles will be significant here as diesel and mild hybrid electric vehicle (MHEV) registrations are forecast to drop from 6% of the market in 2024, to 3% by 2027 – a 56.8% decline. Similarly, petrol/MHEV registrations are expected to decrease from 51% to 35% over the same period. In contrast, BEV registrations are projected to rise from 21% to 34%, marking a substantial 165.4% increase. While PHEV and hybrid electric vehicle (HEV) registrations will grow from 22% to 28%.

New car registrations - 2016-19 vs. 2020-23

Source: Cox Automotive

New car registration forecast 2024 - 2027

Source: Cox Automotive

Strategic repositioning by OEMs 

Traditional European and US brands are under pressure to innovate their product portfolios. In the UK market, this means a difficult balancing act between investing in new technology and preserving profit margins in the face of rising competition. Achieving volume growth in this rapidly evolving market may entail significant restructuring costs for traditional OEMs, many of which are struggling to match the price competitiveness of new NEV entrants. This dynamic is further complicated by tightening emissions regulations, and evolving consumer expectations around environmental sustainability and technological integration.

The financial implications of this transition for OEMs, dealerships, fleet operators and associated asset holders, remain significant but uncertain. While the shift to NEVs is fundamental to long-term strategies, many traditional OEMs are reconsidering their regional focus and market mix to enhance profitability, sometimes prioritising regions where they hold greater market share or more favourable margins. For the UK, this could mean fewer choices in vehicle makes and models if some OEMs opt to reduce their UK exposure, or minimise the vehicle mix on offer.

New car affordability and the used car market

Increased vehicle prices in both the US and UK markets are creating affordability challenges and impacting new car sales. With new car prices outpacing wage growth, the appeal of the used car market as a more financially viable option continues to rise. We explore this further in our used car forecast.

Affordability is becoming a more pressing issue, especially as interest rates – though projected to decline gradually – are unlikely to ease quick enough to provide significant short-term relief for consumers. Persistent inflation and economic uncertainty are further dampening consumer confidence, which may suppress demand for new vehicles in 2025 and beyond.

The future for NEVs

Market conditions are advantageous for new entrants offering more affordable NEVs. Brands like BYD and MG have introduced competitively priced models that cater to consumers who want new vehicles, without the premium price tags. However, beyond pricing, the UK's readiness for widespread NEV adoption hinges on infrastructure development and consumer education, particularly as the government continues to advance policy initiatives favouring the transition to zero-emission vehicles. Industry collaboration will be vital as retailers, energy providers, and government bodies coordinate to meet the demands of a growing NEV consumer base.

Cautious optimism or pragmatic realism?

Overall, the UK's new car market is expected to maintain some stability, with slight growth projected through 2027. Although this may initially sound positive, the market is operating far behind its pre-pandemic potential. While 2025 may see resilience in consumer demand, the market's adaptability will be further tested by fluctuating interest rates, affordability challenges, and the continued dominance of the used car market.

As OEMs adapt to the shifting dynamics, further consolidation of vehicle options could be on the horizon, potentially narrowing consumer choice, but also facilitating a more targeted push towards sustainability. The industry's path forward will depend on how OEMs balance regional demands, profit margins, and the imperative to meet sustainability goals.

UK new car forecasts