European car sales could grow 5-10 per cent in 2023 as battery electric vehicle competition heats up

A new automotive report from Bloomberg Intelligence (BI) anticipates 5-10 per cent growth for European car sales in 2023. European car sales climbed 12 per cent in January, helped by easy year-earlier comparisons, fewer supply-chain hurdles and pent-up demand that boosted registrations. While these new figures may bode well for sentiment, they still trail 2019 considerably, 25 per cent lower. In BEV share, the UK led other European nations, but other major markets now have the benefits of far more generous subsidies reducing the cost of the shift to electric powertrains.

Gillian Davis, BI industry analyst (Autos) and Michael Dean, BI senior industry analyst (Autos) added: “Supply-chain constraints have abated, though tightening consumer budgets amid inflation and rising interest rates are a risk to pricing and the auto-sales recovery. Still, the uncertain economic backdrop is unlikely to translate into a decline in 2023, given 2022 purchasing volume matched previous European recession lows. Excess demand vs. supply – a critical driver of pricing since 2H20 in helping automakers counter volume decreases and maintain or improve profit margin – could reverse in 2023 as vehicle output picks up.”

UK, Germany drive BEV mix upward trajectory

Battery-electric vehicles continue to gain share in Europe, reaching a record 25 per cent of sales in December and 14 per cent last year. The monthly figure surpassed the previous high of 16.5 per cent in 2021, supported by strong BEV shares in the UK (32.9 per cent) and Germany (31.7 per cent). The latter was probably aided by manufacturers’ push to register vehicles in time to meet year-end EU CO2-emissions targets.

In absolute terms, BEVs gained further ground year over year, assisted by government subsidies. The average discounts in December were 21.2 per cent of the list price in Germany and 15.8 per cent in France, according to JATO Dynamics. In the UK, which no longer gives subsidies, reductions languished at 1.9 per cent.

Battery electric vehicle competition heats up

European BEV competition is set to intensify as legacy automakers introduce new models. Though Tesla’s Model Y and Model 3 are Europe’s best-selling vehicle models, incumbents Volkswagen and Stellantis are planning to launch about 21 new BEV models in 2023 to maintain their BEV market share leadership. As of November 2022, among the 15 top-selling vehicle models, Volkswagen had three while Tesla, Stellantis, Renault, Hyundai and Kia had two each.

BEVs remains the bright spot for European car sales despite slow growth due to tough prior-year comparisons and semiconductor shortages. The market share of BEV’s reached 12 per cent as of year-to-date November vs. a mere 2 per cent in 2019. This expansion is likely to accelerate in 2023 as supply-chain issues ease.

Car sales could grow, despite weak underlying demand

The challenging economic backdrop might not translate into lower 2023 car sales, given 2022’s volume matched previous recession lows. Easy prior-year comparisons, pent-up demand and there building of inventory channels may support registrations well into 1H. Yet high interest rates and fears of a recession could keep the industry from strong double-digit growth in 2023.

BMW and Stellantis have already highlighted weakening order intake in Europe as tightening consumer budgets off set possible gains from easing supply-chain constraints. ACEA has forecasted 2023 EU new car sales of about 9.8 million, up 6 per cent from 2022. This would still be 25 per cent below 2019’s pre-pandemic levels.