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Will High Interest Rates Stall Britain’s EV Boom?

  • The UK's new car market recorded an 18.4% increase in registrations in the first half of 2023, with electric vehicle registrations growing 39.4% in June.
  • The market's resilience persists despite concerns over economic instability, rising costs of living, and the impact of potential post-Brexit tariffs on exports.
  • While experts highlight the threat of increasing interest and mortgage rates on car affordability, they call for clear post-Brexit trade policies and incentives for research and development to bolster the industry's competitiveness.
EV

Britain’s new car market recorded its 11th consecutive month of growth in June with registrations rising 25.8 per cent – but it might not be smooth driving in the near future.

Just under one million new cars were registered in the first half of 2023, up 18.4 per cent on the previous 2022, according to new figures from the Society of Motor Manufacturers and Traders (SMMT).

Growth this month was driven predominantly by large fleet registrations, up 37.9 per cent and reflecting the “normalisation of supply,” the SMMT said.

Petrol cars remained the most popular choice of vehicle for Brits, with new registrations rising 22.7 per while diesel dipped 13.5 per cent.

The car market’s continued surge follows a prolonged period of low production in the sector, caused by a global shortage in computer chips that pummelled production post-pandemic.

Electric vehicle (EV) sales have also been a hot topic for the industry, amid ongoing warnings from automakers of the impact of incoming post-Brexit tariffs on exports and concerns over the UK’s home manufacturing capacity.

Battery electric vehicle (BEV) registrations grew 39.4 per cent in June, with deliveries at a record level of 152,968.

Growing back, growing green

Mike Hawes, SMMT chief executive, said “the new car market is growing back and growing green, as the attractions of electric cars become apparent to more drivers.”

Lisa Watson, director of sales at Close Brothers Motor Finance, said that another monthly and year-on-year increase highlights the automotive industry’s “robust performance, as well as continued consumer demand despite the financial burdens tied to the ongoing cost of living crisis and economic uncertainty.”

“The wider macro-economic picture and inflationary pressures may in time dampen demand and impact new car registrations but, for now, the industry remains resilient with no imminent signs of a downturn.”

Warnings on the horizon – and post-Brexit clarity

Despite positive signs in the market, some experts have warned of the impact of rising interest and mortgage rates on car affordability and consumer habits.

Jamie Hamilton, automotive partner and head of electric vehicles at Deloitte, said that despite the growth, “the industry faces an uphill challenge for the rest of the year around affordability. Rising interest rates are impacting the cost and availability of car loans for consumers.”

Richard Peberdy, UK head of automotive for KPMG UK, said “increased car production volumes are clearing the backlog of car orders that built up over recent years of reduced supply.”

“But rising interest and mortgage rates threaten new orders, while also altering which brands and models consumers are opting for.  With new entrants from China and a continued growth of Korean brands, more competition is emerging in the UK car market at a range of price points.”

Meanwhile, Manu Varghese, from EY’s UK & Ireland Advanced Manufacturing & Mobility Team, was more positive – but said the industry needs “clear post-Brexit trade policies”.

“Despite the challenges posed by inflationary pressures and rising interest rates, demand for new cars has remained strong.

“The automotive industry has demonstrated its ability to adapt and contribute to key national agendas, such as levelling up, achieving net zero emissions, advancing global Britain, and promoting economic growth.”

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However, to effectively compete with not only European and American manufacturers but also emerging market players from Asia, the industry requires further support.”

This support can come in the form of clear post-Brexit trade policies with Europe and tax provisions that encourage and facilitate increased investment in research and development.

“This would help the industry navigate a future where innovation, sustainability, and global competitiveness will be paramount.”

By CityAM

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