During the recent Remarketing Expert Track on March 7th, 2024, Dr. Christof Engelskirchen, Chief Economist at Autovista Group, delivered an insightful outlook on the European market and shared essential forecasts on emerging concerns.
“Slowbalisation”
In his presentation, Mr. Engelskirchen offered a perspective on the used vehicle market by juxtaposing current trends with the pre-pandemic era. The post-pandemic landscape is characterized by what Engelskirchen terms “slowbalisation.” Both business and consumer confidence remain below pre-pandemic levels, and there is a discernible downward trajectory in the residual values of both light commercial vehicles (LCVs) and passenger cars, despite LCVs experiencing significant growth over the past four years. These trends are consistent across various countries and markets, indicating minimal growth prospects.
Examining total car registrations in the five major European markets, Engelskirchen suggests that the levels observed in 2018 and 2019 are unlikely to return soon. Leasing continues to be a prominent acquisition method, positively impacting the renewal cycle and expediting the adoption of battery electric vehicles (BEVs). Notably, the BEV segment recorded a 14% increase in registrations across the top five European markets in 2023. Engelskirchen asserts, “The (EV) curve is ascending, and EV sales will claim a significant share of new registrations.”
Three Distinct Market Movements
Between January 2023 and February 2024, residual values for BEVs experienced a drop exceeding the market average. Engelskirchen identifies three primary reasons for this:
Price Point: Engelskirchen notes, “The price index for pure electric vehicles has been under particular pressure over the past six to nine months.” This pressure stems from list price reductions during mass market adoption, impacting BEVs’ remarketing results.
Technological Depreciation: A trend known as high-life cycle depreciation exists in the BEV market, wherein technological advancements lead to depreciation. However, this trend is expected to slow as technology matures and charging infrastructure expands.
Supply-Demand Dynamics: A third element is high supply and low demand as the transition to a mass market occurs. The three-to-four-year-old cars, which were top picks of early adopters and were sold at higher prices, now trail the much smaller and more economical variants of vehicles, announcing a better residual value performance in the mass market buyers of used cars.
Forecast for 2024
Engelskirchen emphasizes significant market uncertainty, noting the resilience of labour markets and decreasing inflation rates. Europe’s prosperous market can potentially increase supply through imports from China. Furthermore, there is pressure from original equipment manufacturers (OEMs) to transition from internal combustion engines (ICEs) to BEVs, likely resulting in supply pressure on BEV registrations.
Amidst the shift to the mass market, newly registered cars are becoming more economically viable and may gain traction in the used car market over time. Additionally, lease companies, armed with enhanced data capabilities, are poised to elevate BEV remarketing to new heights.
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