Article Type: insights

Tables are turning – used-car markets down in 2022, recovery in 2023?

The pandemic saw European used-car markets deliver solid profits on prices that went through the roof. But the situation has changed this year and the used-car market is under pressure. Dr Christof Engelskirchen, chief economist at Autovista Group, provides an outlook for 2023.

Used-car markets boomed during the pandemic. Demand outstripped supply, as people looked for safe alternatives to public transportation and replaced older used cars with younger ones. Prices just kept rising.

The reduction in new-car supplies also helped used-car markets to prosper. This delivered solid profits to stakeholders, who complained about a lack of supply. The rise in prices may have slowed lately, but the market has not yet reached its turning point – with the exception of some milder downward corrections, e.g. in Finland, Poland and the UK.

Used-car price index by country

Source: Autovista Group, Residual Value Intelligence

Used-car transactions down in 2022

Used-car sales initially held up well compared to new-car registrations. Between 2019 and 2020, used transactions in the big five European markets (Germany, France, Italy, Spain, and the UK) dropped by 2.6 million units (from 29.3 million to 26.7 million), partly due to lockdowns. Used-car markets recovered swiftly to 27.8 million transactions, down merely 5% compared to pre-C0VID-19 year, 2019.

In contrast, new-car transactions fell by roughly 25% in 2020 compared to 2019 and ended slightly lower than in 2021. Based on the latest outlooks for 2022, new-car sales may contract further, but not on the same magnitude as used-car markets, which will lose roughly 3 million transactions in 2022 compared to 2021.

‘In the third year of broken supply chains for the automotive industry, tables are turning for used-car markets,’ comments Andreas Geilenbruegge, head of valuations and insights at Schwacke (part of Autovista Group). ‘Used-car transactions are coming under pressure. Our most recent outlook indicates that for Germany alone, there will be one million fewer used-car transactions in 2022. There will only be roughly 5.7 million transactions compared to 6.7 million in 2021 – a contraction of 15%.’

New- and used-car transaction big five markets 2017-2022*

Consumer confidence at all-time low

This contraction is more substantial than many players had anticipated at the beginning of the year. There are several reasons why used-car markets tightened like this:

  • With surging inflation, used-car prices have risen so much that elasticity of demand is kicking in. People are thinking hard about whether they can afford to buy a used vehicle at this price point. The alternative is to hold on to an existing used car for longer.
  • Changing monetary policy from central banks aimed at combating inflation, bears a tangible risk of negative consequences on economies and job markets. This is another crucial factor that delays purchase decisions.
  • The Russian aggression in Ukraine adds another layer of uncertainty to the equation, not only linked to rising costs for energy. Consumer confidence is at an all-time low.
  • The continued lack of new-car supply also reduces the number of available used cars. For example, models registered in 2018/ 2019 which are now up for leasing renewal are facing longer holding periods as replacements are not coming in – reducing the number of used cars created. Furthermore, three years of lower-than-normal short-cycle registrations lower the number of (young) used cars in the market.

Fewer used-car transactions

The contraction of used-car markets is largely associated with older used-cars, i.e. those older than four, or even 10 years. ‘The transactions of younger used cars, especially those coming off leases, have held up remarkably well. They are largely on pre-crisis level’, said Marc Odinius, managing director at Dataforce. ‘We also see the anticipated dip in short-cycle registrations washing through to used-car markets now, as OEMs seek higher-value channels. That is why used-car transactions in the zero to two-year age cluster are down. But clearly, the most impactful contraction happens in the older-vehicle segments.’

Used-car transaction by age (example: Germany) Jan 2017-2022*

*Full- year forecast for 2022
Source: National registration offices, Dataforce, Autovista24 analysis

High prices reduce willingness to compromise

Used-car transactions are coming under pressure in the older than four-year segment. Prices were rising in this category more than in any other age group, which explains why this segment is now slowing down. According to Geilenbruegge, ‘the lack of abundant supply of cars combined with very high prices make it more challenging to find the right buyer for a specific car. At those prices, people are not willing to compromise and some walk away from the market.’

Used-car price index by age cluster (example: Germany)

Source: Autovista Group, Residual Value Intelligence

Uncertain outlook for 2023

The origin of the current crisis lies in cracked supply chains, strong demand, as well as solid private and public spending power. Following the economic contraction in 2020, there was a quick rebound in 2021, which drove energy prices and inflation up already towards the end of 2021.

The Russian invasion of the Ukraine in early 2022 has driven energy prices up further. They account for roughly 50% of the inflation we are witnessing in Europe. Central banks are now biting down late, but harder, creating another element of economic stress. Furthermore, there are continued semiconductor shortages and lockdowns in China, which keep on disrupting supply chains. Autumn and winter waves of COVID-19 infections may also have a negative impact.

Autovista Group’s base case for 2023 anticipates continued supply chain issues, very low economic growth paired with high uncertainty, and inflation above target zones. This will keep new- and used-car markets under pressure. The current level of contraction on new-car markets is largely caused by supply chain issues – most cars due to be registered were ordered many months ago. Some of the automotive supply-chain issues should ease come 2023, which is the fourth year of the crisis.

New-car registrations should rise versus 2022. Used markets are expected to be stimulated accordingly, as more cars will be supplied. A recovery is expected in 2023 versus 2022 on both, new- and used-car markets, but this does not mean 2023 will be a rebound year for the automotive industry.

Of course, projections into 2023 are sensitive to assumptions on how quickly the abundance of negative factors will ease. There may be more positive scenarios evolving in 2023, for example if a stable ceasefire can be achieved in the Ukraine or if energy prices fall. However, it seems wise to caveat any outlook towards a more negative turn of events. For example, in its economic outlook in July, the IMF stated: ‘the risks to the outlook are overwhelmingly tilted to the downside’.

This content is brought to you by Autovista24.

Japan earthquake disrupts automotive production

An earthquake in Japan has caused further disruption to vehicle production and semiconductor supply as the automotive industry continues to struggle with external pressures influencing the automotive market.

The disruption has caused automotive production delays affecting both Toyota and semiconductor supplier Renesas Automotive.

The 7.4 magnitude quake struck the north-east of the country on 16 March, rattling buildings, causing widespread power cuts, and derailing a bullet train. According to reports, the tremor caused 160 injuries with two people losing their lives. The quake affected areas around Fukushima, Miyagi, and Yamagata.

Toyota shuts production lines

Toyota said that due to parts shortages resulting from vehicle-production suppliers affected by the earthquake, operations in some plants around Japan would be adjusted.

‘While prioritising the safety of the people and the recovery of the region, we will continue to work with our relevant suppliers in strengthening our measures against the parts shortage and make every effort to deliver vehicles to our customers as soon as possible,’ the company stated.

In total, 18 of the carmaker’s 28 production lines at 11 of its 14 plants are suspended, and due to restart on 24 March. This will impact a number of vehicles, including variants of the Yaris, the RAV4, the Land Cruiser, and Toyota’s hydrogen fuel-cell model, the Mirai. Additionally, several Lexus models will also be affected by the shutdown.

Semiconductor supply shutdown

Renesas shut down its three closest semiconductor factories to the epicentre of the earthquake. On 18 March, the company restarted production at its factories in Hitachinaka and Takasaki, with both locations expected to be up to pre-earthquake production capacity by 23 March. Its Yonezawa location also restarted on 17 March, with production capacity reached on 20 March.

The company added that it has yet to receive any reports of facility damage that would impact both restart timelines and/or future production of semiconductors.

This will be good news for the automotive industry. Semiconductors have become a valuable commodity in the last two years, with new-vehicle technologies rely heavily on their use. Renesas supplies chips for use in numerous automotive applications, including advanced driver-assistance systems (ADAS), autonomous developments, connected and infotainment technologies, and powertrains.

Supply-chain frailties

While production shutdown for both semiconductors and vehicles may be brief, it will still cause disruption in a market that is already suffering from supply-chain issues.

The COVID-19 pandemic, the semiconductor crisis, and the conflict in Ukraine have highlighted the frailty of links that carmakers created to ensure their global businesses can operate efficiently. Many of these chains are spread across multiple markets, and until a few years ago, worked seamlessly. The Japanese earthquake will ultimately delay car deliveries once again.

However, the industry has been aware of the potential impact that any external problems could cause in the supply chain. Many carmakers have procedures in place to deal with such disruption, including shutdowns of plants or sourcing from other companies. The closing of Toyota’s production lines, while causing the cancellation of thousands of vehicles, is relatively short. The carmaker is using the time to ensure critical components are on-hand to begin manufacturing again as soon as possible. 

Why charge an electric-car battery when you can swap it for a full one?

Electric vehicles (EVs) are developing at an incredible rate. Their efficiency and range keeps rocketing forward. But no matter their range, all EV batteries need to be recharged eventually. Unless of course, the spent power-storage unit could simply be exchanged for a full one? This is a concept gaining increasing traction in the world of mobility.

Bosch, Mitsubishi and Blue Park Smart Energy (BPSE) will collaborate on a new battery-as-a-service business model aimed at commercial fleets. It will utilise the German supplier’s battery-in-the-cloud technology, the Japanese carmaker’s service-commercialisation capabilities, and the Chinese company’s battery-swapping platform.

Elsewhere, Gogoro has unveiled what it called the ‘world’s first swappable solid-state battery prototype for EVs.’ Jointly developed with ProLogium Technology, the system is intended for two-wheeled vehicles and integrates with Gogoro’s existing swapping network.

Commercial-fleet battery swapping 

Mitsubishi, Bosch and BPSE recognise the demand for electrification is growing with each passing day. But the upfront cost of deploying an EV fleet, charging downtime and battery uncertainties are some of the major factors holding back the electrification of commercial fleets. Swapping technology could be a potential solution, allowing operators to maximise the usage of their EVs.

So, under the trio’s collaboration, Bosch’s battery-in-the-cloud will continually monitor and analyse power-storage units using artificial intelligence (AI). This will provide control to the battery, meaning maximised life and performance while also optimising fleets’ total cost of ownership (TCO).

The trio is looking to develop and provide a service to detect and predict the health, capabilities, and optimal usage of batteries. All this insight can help reduce the major factors preventing EV adoption as well as the utilisation of batteries on the used market, resulting in reduced fleet TCO.

Swappable solid-state batteries

Solid-state batteries (SSB) are a long-awaited technology, holding the potential to reduce the size and weight of the power-storage unit, while also increasing its density. The expectation is that SSB lithium-ceramic batteries are the next evolutionary step on from lithium-ion chemistry. But the Taiwanese company did not stop there, it decided SSB should also be swappable.

‘Gogoro is unveiling the world’s first solid-state battery for two-wheel battery swapping because it is imperative we take advantage of the latest battery innovations to introduce a new era of electric transportation growth and adoption in our cities,’ said Horace Luke, founder, chairman, and CEO of Gogoro.

‘We partnered with ProLogium Technology, a global leader in solid-state battery innovation, to jointly develop this new battery that delivers higher energy density for better range, improved stability and safety, and is reverse compatible with all existing Gogoro-powered vehicles,’ he added.

The Gogoro Network is an open and interoperable battery-swapping platform for lightweight urban vehicles. It has been designed to be smart, scalable, and dynamic. It has more than 450,000 riders and over 10,000 battery swapping stations at over 2,300 locations. This allows it to host 340,000 daily swaps, powering 95% of electric two-wheeled vehicles in Taiwan. With such advanced technology available for two-wheelers, surely the same developments for larger vehicles cannot be far behind.

European new-car market could need decade to recover but electric cars will dominate

Autovista24 senior data journalist Neil King considers the outlook for the European new-car market and the pace of electrification.

New-car registrations in Europe – encompassing the EU, the UK, and the European Free Trade Association (EFTA) markets of Iceland, Norway, and Switzerland – plunged by an unprecedented 24.3% year-on-year in 2020. As the industry contended with ongoing restrictions and semiconductor shortages in 2021, the market tumbled by a further 1.5%. This equates to a contraction of 25.5%, or more than four million cars, compared with 2019.

Autovista24 expects car component supply bottlenecks to ease throughout 2022, especially during the second half, although it will take time to filter through to registrations and clear the backlog. Predicated on this assumption, year-on-year growth of 7.6% is forecast for the European new-car market in 2022, followed by 9.4% in 2023.

The new-car sector is not expected to return to the pre-pandemic level of 2019 until 2031, with modest downturns incorporated into the forecasts for 2025, 2030, and 2035. Demand for new cars is expected to be pulled forward from these years as governments and manufacturers alike strive to meet a 25% reduction in CO2 emissions in 2025, and 55% by 2030, as per the European Commission’s ‘Fit for 55’ proposals. For 2035, the CO2 reduction target is set at 100%.

Although this presents a rather gloomy picture of slow recovery from the COVID-19 pandemic and supply shortages, there is positivity as 2020 may also be remembered as the year that electromobility gained traction. The new-car market may not return to pre-pandemic levels by the end of the decade but electrically-chargeable vehicles (EVs) are forecast to capture more of the market than internal-combustion engines (ICE) and hybrid-electric vehicles (HEVs) combined.

Downside risk from Ukraine

There is a new downside risk to this forecast, however, following the Russian launch of military action in Ukraine on 24 February. Fuel and gas prices are already reported to have risen sharply, which will add to the inflationary pressure on household budgets if they remain at high levels.

In one scenario, Russia will only occupy separatist regions and the conflict will not escalate further than this. Eastern European countries such as the Baltic states, Poland, and Romania, might be affected by the uncertainties around the Russian aggression, with a dent in economic growth. This would not have a lasting impact on new-car markets in Western Europe, however, given the ongoing supply shortages. Lower demand for cars in Russia and Eastern Europe could even relieve supply pressure elsewhere.

In a second scenario, Russia could seek to occupy all of Ukraine, which would entail greater sanctions than in the first scenario. Eastern European markets will be negatively affected as they are more dependent on economic relations with Russia. Very little impact is expected on new-car markets in Western Europe, and the EU could even lower its emissions targets or extend the timelines to achieve them.

2020 switch to electromobility

While the European automotive sector suffered a significant contraction in 2020, not all fuel types were affected equally. Although the year will be remembered for the COVID-19 pandemic, it may also go down in history as the year the industry turned towards electromobility.

Registrations of new petrol and diesel cars fell significantly in 2020, according to ACEA, the European carmakers’ association. However, the two fossil fuels still commanded a 74.1% market share, albeit down from 88.8% in 2019. Diesel declined by 35.3% year-on-year with its full-year market share dropping to 26.2%, from 30.4% in 2019. Meanwhile, demand for petrol vehicles fell by 37.5% to below 5.8 million units. This translated into a market share of 48.2%, down from 58.4% in 2019. 

All types of electrified vehicles experienced higher sales in 2020, along with significant market-share growth. Hybrid-electric vehicles (HEVs) made up 12.7% of the market, up from 6.1% in 2019. Following closely behind, EVs accounted for 11.4% of the new-car market, compared to just 3.5% in 2019. Registrations of battery-electric vehicles (BEVs) more than doubled in 2020, while market share increased from 2.3% to 6.2%. Registrations of plug-in hybrid electric vehicles (PHEVs) more than trebled, with their share of the market rising from only 1.3% in 2019 to 5.2% in 2020.

ACEA has pointed to government incentives as being largely responsible for the meteoric rise in BEV and PHEV sales in Europe during 2020, which increased by 107% and 211% year on year, respectively. Germany is a prime example of generous incentives equalling strong growth, with BEV and PHEV registrations surging by 206.8% and 342.1%.

Electrification drive in 2021

The demise of ICE cars and the transition to EVs continued in 2021, albeit with lower year-on-year growth rates. This is despite the comparative stability of the market after the unprecedented decline in 2020. Both drivers and carmakers benefitted from increased incentives as governments across the region looked for ways to meet strict emissions targets. Manufacturers have also sought to supply as many EVs as possible throughout the semiconductor crisis, which has had a dramatic impact on car production. This has been essential for them to meet their European emissions targets, especially as these targets now apply to every new car registered in 2021, as opposed to 95% in 2020.

BEV registrations increased by a further 63.4% last year, to exceed 1.2 million units, according to ACEA. PHEV registrations enjoyed slightly higher growth, climbing 68.5% to over one million units. HEVs performed almost as well, gaining 58.5%. These significant double-digit growth rates are in sharp contrast to the 17.4% and 33.1% respective declines in the volume of registrations of petrol and diesel cars. 

BEVs and PHEVs accounted for 10.3% and 8.9%, respectively, of European new-car registrations in 2021. Accordingly, EVs gained a share of 19.2%, just below the 20.5% share achieved by HEVs, but ahead of the diesel share of 17.6%. Nevertheless, petrol remained the dominant fuel type in Europe last year, accounting for 40.4% of the market.

Note: BEV share includes hydrogen fuel-cell electric vehicles (FCEV)

Forecasting uncertainty

Looking to the future, the European Commission’s plans for an effective ban on the sale of new fossil-fuel vehicles (including HEVs and PHEVs) from 2035 means both OEMs and governments need to transition quickly to zero-emission vehicles (ZEVs), namely BEVs and FCEVs.

Carmakers across Europe have stepped up the pace in introducing more battery plants to meet the rising demand. Governments, on the other hand, will need to fund purchasing incentives and an expansion of the car-charging network, especially as many countries are considering whether to end ICE sales before 2035. The UK, for example, plans to end the sale of ICE cars in 2030.

Forecasting how much market share EVs will gain in Europe is marked by uncertainty due to issues, such as the need to introduce appropriate charging infrastructure and industrial policy, which includes government subsidies and CO2-emissions fines. Other challenges include a need for more technological innovation, rising fuel prices, and consumer acceptance.

Autovista24 predicts that the EV share of the European market will rise to 23% in 2022, before jumping to 34.5% in 2025 and 57% in 2030. In line with the anticipated market corrections in 2025 and 2030, spikes are assumed in the EV share. By 2035, the expectation is that all European countries will have ended ICE passenger-car sales and the market will essentially be a two-fuel race between BEVs and FCEVs.

Note: BEV share includes hydrogen fuel-cell electric vehicles (FCEV)

Forecasts have been constantly revised upwards in recent years because of new developments, such as the 2021 Paris Climate Agreement, stricter emissions targets, COVID-19, and rising fuel prices. They have led - and will continue to lead - to a quickening of EV adoption. 

But most countries still have a long way to go. Of the 30 European countries tracked by ACEA, only Norway has excelled with EVs accounting for 86.2% of the market in of 2021. Iceland came in second at 54.7%, but the big five markets are lagging far behind (France 18.3%, Germany 26%, Italy 9.4%, Spain 7.8%, and UK 18.5%).