Automotive review Q4 2022

Original equipment manufacturers (OEMs) across the UK's automotive industry have been unable to supply the global market, keeping the prices of both new and used vehicles high. At the end of 2022, the number of new vehicles registered in the UK was 1.61 million units, the lowest number of new registered passenger-vehicles in the last 10 years. This is a 2% decline on 2021, and 30% on pre-COVID-19 levels (2019 full year registrations). Limited new-car supply meant that H1 2022 suffered the greatest decline in new vehicle registrations, leading to a 11.9% year-on-year decline in the new car market.

In the second half of 2022 vehicle supply increased, resulting in a return to year-on-year growth rate in new vehicle registrations. The evidence suggests that factories are starting to increase capacity as the semi-conductor shortage slowly becomes less of an issue. We can't determine OEM factory capacity in Europe and the UK as this information isn't readily available.

Capacity Utilization: Automobile and light duty motor vehicle, Percent of Capacity, Quarterly, Seasonally Adjusted (USA)

_{Source: Federal Reserve Economic Data}

Although the supply of semi-conductors is improving, supply and distribution chains are struggling. Some OEMs have indicated that the lack of trucks and truck drivers has meant that even OEMs who have solved their semi-conductor issues can't move vehicles from the factory gate to dealers. However, disruptions in supply chains and distribution are expected to continue well into 2023, prolonging shortages in some brands and models. Recent joint forecasts from our team and Cox Automotive indicate limited improvement in 2023. Any strength in new vehicle growth will be in the later part of the year.

New vehicles registrations 2023

_{Source: Grant Thornton and Cox Automotive}

The shortage of new vehicle supply has also impacted the used car market, where 1.5 million fewer vehicles are estimated to have been supplied to the used car market between 2019 to 2022. In turn, this has led to a shortage in the supply of used vehicles, which has meant that used vehicle sales declined to 6.8 million units in 2022. Expected growth in the used-car market this year will be curbed to some degree by the ongoing shortage of vehicles, and by weak demand exacerbated by faltering consumer confidence and tough economic conditions.

Used car sales 2023

_{Source: Grant Thornton and Cox Automotive}

The chart below shows consumer confidence levels, which have remained negative since May 2016 and are expected to remain negative for the foreseeable future. This weak consumer confidence will be reflected in demand for used and new vehicles in 2023. There might be some weakness in the used-car prices due to poorer demand, but this isn't expected to be significant as used car prices will be supported by the shortage in supply of used vehicles (source: Autotrader).

Consumer confidence

_{Source: GfK}

Used vehicle retail prices in the UK

_{Source: Autotrader}

In 2023 growth in the automotive industry in the UK is expected to be limited – registration and vehicle sales. Production is expected to improve in 2023 as OEMs receive an increased supply of raw materials and semi-conductors, etc, and once again vehicle production starts to increase, albeit starting from very low registration levels. Therefore, the focus this year will be on controlling costs as inflation increases in 2023. Sales teams should be focusing on vehicle sale as consumer confidence remains weak. Every sale needs to be considered and followed up. Cashflow still remains core to retaining a robust positioning in the automotive market.

For more insight and guidance, get in touch with Owen Edwards.

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In 2019 a little under 17,000 Chinese made cars appeared on UK roads; three-quarters were MGs, once a sporty UK brand, but now owned by SAIC of China. The balance were Volvos, almost all of which were S90 Sedans. In 2020 sales of Chinese-made cars rose to nearly 23,000; MG’s share of this rose to 81%, while Volvo’s declined, and the first Polestars appeared on UK roads.

COVID-19 drives Chinese-made car sales forward

In 2021, with the UK market depressed as a result of the pandemic and reduced availability of cars from Europe as European vehicle manufacturers rebuilt their production systems, Chinese-sourced models sold in the UK more than trebled to nearly 76,000. MG’s share fell to 40% and Tesla leapfrogged MG with a 45% share – Tesla sourced vehicles from China because its US plant couldn't make enough vehicles and its German plant hadn't yet opened. Volvo sales continued, while Polestar’s share grew to c.4,000 and the first Chinese-made BMWs appeared, with the iX3 electric SUV leading the way. This pattern continued in 2022, with a small number of Citroen C5X SUVs and the large DS9 Sedan arriving in the UK.

Electric vehicles

Other well-known brands will also source new electric vehicles (EVs) from China, including Smart (production having shifted from France) and Mini (replacing the UK-made Mini Electric), while a new small Volvo SUV, possibly called XC20, is also likely to be sourced from China owing to capacity constraints at Volvo in Belgium.

Some of the Chinese-made Teslas will be replaced by models sourced from Germany, but some sourcing from China will likely continue, despite the 10% import duty levied on Chinese-made cars (US-made models also face a 10% import duty). The other well-known brands will continue sourcing from China, largely because the models they source from China are only made in China. MG has added to its imported range with the MG4 Electric being sold across Europe, including in the UK, from early October. The MG4 Electric has been positioned directly against the VW ID3 and is intended to help raise MG’s European sales to over 100,000, with the UK being the largest market for now, accounting for 45-50,000 expected sales this year.

Chinese brands on the horizon

The next stage of the rising influence of Chinese-made models on UK sales will come with BYD, Great Wall, and Ora the unfamiliar names we can expect to see on UK roads in 2023. BYD will sell its Han saloon, Tang SUV and Atto 3 crossover. It will also sell its Seal model, reportedly a direct competitor to the Tesla 3. A BYD spokesman has suggested that European production is possible but if BYD and others can sell Chinese-made models – including the 10% import duty levied on their landed value – at a profit in Europe why will they invest in manufacturing in Europe?

Nio, another new Chinese EV manufacturer, is already selling its cars in Norway and some other European markets and are growing their presence through the installation of innovative battery swapping facilities. No doubt the Nio will appear in the UK soon, but they'll likely be preceded by Ora (a Great Wall brand), with its Cat 01 small hatchback, another model designed to take on the ID3. 

Other Chinese brands on their way to the Europe include XPeng, with the P5, a Tesla 3 competitor, and the P7 Sedan; Lynk & Co, a Geely brand, was due to have some production take place at Volvo in Belgium but when this plant ran out of capacity owing to heavy demand for XC40 and C40, plans for European production were shelved. Lynk & Co will launch the 01 hybrid in the UK in 2023, with other models not far behind.

Chinese models not an unwelcome change

UK – and European – consumers don't appear worried about buying cars from China; some people, including those buying the BMW iX3 and Volvo S90, may not even know their cars come from China.

Undoubtedly, there will be a consumer cohort who wants European-made cars, with some also only wanting to buy cars made in their own countries, but this number is declining. Moreover, with computers, iPhones and much more besides coming from China, if Chinese-made cars pass requisite technical standards and are sold at affordable prices (including 10% import duty levied at port of entry), then consumers appear willing to buy them, especially with mushrooming delivery times for European-made models.

Consumers who once only wanted German cars from Germany have long accepted Mercedes and BMW SUVs from the US, Audis from Mexico or Hungary, and Volkswagens and some BMWs from South Africa. Ford Transit drivers (a vehicle long marketed by Ford as the backbone of Britain) drivers of vehicles made in Turkey, as have drivers of the Renault Clio, Toyota CHR and Hyundai i10 and i20. The geography of manufacturing – even for some premium brands – no longer seems to matter; or perhaps it never did, and we simply thought it did.

For more insight and guidance, get in touch with Oliver Bridge.

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