With the easing of semiconductor chip supply constraints, car production is heading back to normal levels. With normal production comes more supply, and greater supply in the market often leads to one thing: discounting.
“There are signs that the new car market is on the way to returning to its pre-Covid way of operating,” says Pat Hoy, automotive industry researcher and head of our sibling brand What Car?'s Target Price mystery-shopping team. “There are now increasing numbers of cars being built for a market that has almost exhausted its post-Covid pent-up demand and is facing significant increases in the cost of living."
Target Price data reflects that, with discounts running 21% higher than at this time last year, at an average of 4.2% off the list price, or £2509 per car. There has also been a 48% increase in PCP finance support, which increases that Target Price saving further still, to £3070 per car (6.3% of the total price).
It’s electric cars that are driving that number higher. “Manufacturers are facing added pressure to ramp up electric vehicle sales beyond the early-adopter cohort ahead of legislated electric car sales targets from 2024,” says Hoy. “The clear focus of increased consumer discounts has been on electric cars in recent months, with manufacturers heavily loading the added savings into their PCP deals to avoid overt cash discounting.”
The 2024 ZEV mandate of 22% of a manufacturer’s total sales being electric means that electric cars are seeing the greatest discounts. With that 22% target on the horizon, SMMT data shows that so far in 2023, 17.9% of the market has been battery-electric vehicles. In the same period last year, it was 16.1%. At the current run rate, the 22% target will not be reached, and consumer confidence in EVs is unlikely to be as high, given the recent indecision and mixed messages from the government about their future uptake.
In lieu of government incentives to support the target it has mandated, manufacturers are left to fill the void and are discounting electric cars more heavily than the market average.
“The total average Target Price saving [cash and finance] on electric cars is at an all-time high of 5.3% [£3281 per car] , up from 3% [£1768 per car] over the last quarter,” says Hoy. “That is a 76.6% increase in electric car Target Price discounts over this period.” The £3281 discounts on EVs top those of diesel (£3260), hybrids (£3072) and petrol models (£2941).
The rise in supply and the need to discount, particularly to reach EV targets, comes as household finances are being squeezed like never before, most recently through sharp increases in mortgage rates. For now, that has not impacted new car registrations, which were up 25.8% on 2022 in the first half of 2023, according to SMMT data.
As the squeeze on personal finances increases, the size of the discounts needed to entice buyers will surely grow with it, yet this isn’t the only market dynamic that will lead to a more competitive marketplace for buyers.
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