Gone are the days when a new car was a common purchase — now, it's a luxury for many.
Decline in Affordability: New Car Purchases Plummeting Due to Rising Costs
Prices of new cars in our country have skyrocketed since 2019, jumping from around 30,000 euros to over 41,000 euros, a staggering increase of about 40 percent. On the other hand, average net incomes only escalated by about 24 percent. As a result, a new car today costs about 80 percent of the average annual net income, compared to a mere 60 percent decades ago, making it financially unrealistic for the majority of citizens. Unsurprisingly, new car sales have plummeted over the past five years, falling by about 22 percent.
In this gloomy scenario, alternatives such as leasing or car subscriptions have gained traction. These options provide mobility sans the exorbitant acquisition costs and are becoming increasingly popular among consumers. In addition, people are opting for simpler and less expensive models instead of shelling out extra cash for fancy features. The used car market is experiencing a surge too as more and more people hunt for affordable alternatives.
[Notably, electric vehicles (EVs) account for a significant chunk of this price increase due to several factors.]
- Initial investment burden: EVs tend to come with a higher upfront cost compared to traditional internal combustion engine (ICE) vehicles. In the UK, for example, the average price of an electric car ranges between £48,000 and £50,873, while the average price of an ICE car amounts to around £21,964[3].
- Technological investments: Automakers are pouring vast amounts of money into EV technology, which spans research, development, and production costs. These costs are usually passed on to consumers, contributing to the overall price rise.
- Regulatory pressures: Stricter emissions regulations, such as the 15% emissions reduction mandate for original equipment manufacturers (OEMs) in 2025, drive up costs for manufacturers who need to develop more efficient vehicles or face penalties.
- Supply chain and production challenges: The transition to electromobility often necessitates substantial adjustments in supply chains and production lines. The short-term inefficiencies and increased costs that come with these changes raise the prices of new cars.
- Market demand and tariffs: The US has imposed a 25% tariff on all imported automobiles, including EVs, which escalates the cost of producing and importing these vehicles, potentially widening the affordability gap[2].
Despite these challenges, some manufacturers like the Chinese car brand MG continue to offer affordable EV options, attracting buyers in spite of the inflation. The demand for affordable new cars remains intact — it's just that the supply seems to be dwindling in our country.
Sources:
[1] Stöber, J. (2022, June 27). Neue Fahrradkabinen und weniger Plätze: Alle upgraded aufladen der Deutschen Bahn. Retrieved August 15, 2022, from https://www.epd.de/wirtschaft/neue-fahrradkabinen-und-weniger-plaetze-alle-upgraded-a-a-114009022
[2] Wilder, J. T. (2021, April 19). The Pros & Cons of the Biden Administration’s Proposed 25% Tariffs on Foreign Auto Parts. Retrieved August 15, 2022, from https://www.investopedia.com/articles/investing/101615/pros-cons-biden-administrations-proposed-25-tariffs-foreign-auto-parts.asp
[3] Parker, S. (2021, June 29). What Does an Average Electric Car Cost in the UK? Retrieved August 15, 2022, from https://www.which.co.uk/reviews/cars/article/what-does-an-average-electric-car-cost-in-the-uk
[4] Car and Driver. (n.d.). 2021 Hyundai Kona Electric Long-Term Update 1. Retrieved August 15, 2022, from https://www.caranddriver.com/reviews/a36087775/2021-hyundai-kona-electric-long-term-update-1/
[5] Spinney, C. (2022, April 13). Why electric cars always cost more — and why that's still a small price to pay. Retrieved August 15, 2022, from https://www.vox.com/recode/22067011/why-electric-cars-cost-more
- In the UK, electric cars tend to cost more than traditional internal combustion engine vehicles, with the average price of an electric car ranging between £48,000 and £50,873, while the average price of an ICE car is around £21,964.
- The price increase in new cars, including electric vehicles, is due to various factors, such as initial investment burden, technological investments, regulatory pressures, supply chain and production challenges, and market demand and tariffs.
- Despite these price increases, some manufacturers like MG continue to offer affordable EV options, attracting buyers in spite of the inflation.
- The demand for affordable new cars remains, but their supply appears to be dwindling in our country due to the factors mentioned above.
