The Car Market In the UK Has Now Fundamentally Changed
2016 probably marked the peak of sales growth for conventionally-fuelled, non-electric internal-combustion vehicles in the UK – meaning they are now likely in long-term sales decline.
A short-hand way of describing this is “Peak ICE”, Peak Demand for Internal Combustion Engines – and it has now occurred.
Cars have started to become more like devices rather than stand-alone commodities.
Peak ICE in the UK
To see how this works, let’s focus on UK car sales over the past few years.
For motor manufacturers the trend in growth is as important, if not more so, than the actual sales number – are sales growing each year or declining?
Total new car registrations (a close match for sales) in the UK 2010 – 2016 are summarised below – data sourced from SMMT here.
On the face of it this shows an upward trend of new car sales from 2011 to 2016, although actual numbers are only just above a previous peak over a decade ago in 2003.
To be precise, in 2016 in the UK 2.69 million new vehicles were sold, versus 2.63 in 2015 – so incremental growth of about 60,000 cars, or 2.3%.
It seems obvious that in the UK car sales are growing. But that single growth percentage number masks two distinct types of increase.
There are in fact now three discrete types of mass-market car available in the UK (and globally) in significant numbers (1): conventional internal combustion engine vehicles (ICE), hybrid petrol-electric vehicles and plug-in hybrid and full electric vehicle (HEV/PHEV/EV).
Whilst overall UK car sales have grown steadily, the sales of HEV/PHEV and EV automobiles have grown far faster.
In 2016, Conventional UK ICE sales grew by 1.6% to 2.60 million units from 2.56.
But sales of UK hybrid and plug-in vehicles grew by 25% to almost 90,000 sales, from 71,000 in 2015.
This means that of the 60,000 vehicles of extra growth sold in 2016 over 2015, 40,000 were conventional, but 20,000 hybrid or electric. So, alternative vehicles constituted 33% of new sales growth, and up from 15% the year before.
Put another way, although EVs and hybrids were only 3.3% of total UK sales in 2016, they constituted 33% of the growth is sales.
It’s an important distinction.
This is the sort of information financial markets and automotive manufacturers do not miss. As we have noted before, any major OEM who decides to concentrate all of their investment and innovation into conventional ICE vehicles is now betting their capital on a declining market, and potentially avoiding the large growth of hybrids, plug-in hybrids and all-electric vehicles along with their new features such as autonomy and software services.
This increase in new model offers is now critically important in the UK because near-term sales of all passenger cars are forecast to actually fall in 2017 and 2018. SMMT now predict a decrease in total UK car sales of about 5% in 2017 and 1.3% in 2018 due to sterling weakness and economic uncertainty.
However, the growth in UK hybrid and EV sales is likely to continue at strong positive rates due to at least three factors: general price and running costs reductions plus government incentives, greater infrastructure access (the UK is leading Europe in this regard), and heavier marketing of plug-in and hybrid vehicles by automotive firms.
Add to this the base rate momentum of growth, and we can reasonably assume that non-conventional vehicles will continue to grow rapidly in market share.
If we suppose that a downturn in UK sales of 5% will also slow the pace of electric and hybrid growth from 25% in 2016 to 20% in 2017 and 2018, we can simply model the overall shape of the new vehicle demand picture below, showing the trends in both ICE vehicle and electrified vehicle/hybrid demand.
If this is run further forward until 2025 with 20% EV/plug-in/hybrid growth assumed, and flat for all vehicles, the trend is clearer.
Note alternative scenarios show the same feature – Peak ICE – even if EV sales weaken to say 10% growth rather than 20%, and ICE sales drop only by 2-3% this year rather than 5%.
In fact, even if hybrid vehicles are excluded from the tally as they are not plug-in electrics, the same trend still emerges – the growth in EV/PHEVs becomes too large for future growth of ICE vehicles to ever regain a positive trend.
The bottom line is that sales of ICE cars have peaked under almost every reasonable scenario. This is simply because conventional ICE vehicles in the UK have reached a plateau and downturn in sales at the very same time as the investment and availability of plug-in and hybrid car models has taken off, along with supporting infrastructure.
Timing is everything.
2016 was indeed Peak ICE for the UK automotive market.