Sales of new cars in the UK fell by nearly a 10th in July because of supply chain problems, forcing the industry body to cut its full-year forecast even though it expects chip shortages to ease in the coming months.
New car registrations in July fell 9% from a year earlier to 112,162 vehicles, as shortages continued to hamper carmakers’ ability to fulfil orders, according to the Society of Motor Manufacturers and Traders (SMMT). Sales fell for the fifth month in a row, although the decrease was the smallest recorded this year.
Large corporate fleets registered an 18.2% decline, to 50,014 vehicles, while sales to consumers held steady at 59,847.
A global shortage of semiconductors, exacerbated by Covid lockdowns in important manufacturing and logistics centres in China, along with the disruption caused by Russia’s invasion of Ukraine, all restricted production of new cars.
The SMMT said the first half of 2022 had been tougher than anticipated, and cut its full-year forecast for new car sales to 1.6m, down from 1.72m. This is equivalent to a 2.8% drop in sales compared with 2021, and would make 2022 the most challenging year for the industry in three decades. There have been about 2m fewer car registrations since the pandemic began, the equivalent to a whole year of sales.
The SMMT has also lowered its sales forecast for next year to 1.89m, down from 2.02m. Demand for electric cars continues to grow, however, and plug-in cars are expected to reach a market share of 22.6% this year, rising to 27.8% next year.
The lobby group expects global chip shortages to start to ease over the coming months, although it will take a while before supply returns to normal. Shortages are still likely to be a problem next year, but to a lesser extent.
Chip manufacturers have been investing in additional production capacity in the face of shortages that have been far more severe than predicted.
July was a tougher month for electric cars. Sales of battery-powered electric vehicles (EVs) across the UK grew 9.9% to 12,243, and accounted for 10.9% of overall car sales for the month. While this is the weakest monthly uplift in electric car sales since the pandemic, overall growth so far this year has reached 49.9%, equal to a 13.9% market share, illustrating the volatility in the supply chain.
It was also a weaker month for hybrid electric vehicles, with registrations falling 6.7% to take 12.2% of the market. Plug-in hybrids were down 34%, reducing their market share to 5.8%.
Ian Plummer, the commercial director at Auto Trader, said demand for new cars was a lot higher than the figures suggested, and that supply chain issues had “hidden” the true level.
“The market problem is still one of supply as war in Ukraine and component shortages keep a lid on new vehicles despite a lengthy queue of would-be buyers,” Plummer said. “Retailers still have backlogs of orders stretching back many months which they can’t fulfil yet, despite the best efforts of manufacturers.”
He said worries over high fuel costs and the cost of living crisis were pushing drivers towards electric vehicles, particularly when it cost nearly £100 for a tank of petrol while charging an electric car at home cost a fifth of that.
“With fuel prices as high as they are, EV owners are now saving £165 for every 1,000 miles they drive. The savings are such that demand for EVs is outpacing actual sales. Around one in four of all new cars viewed on our site are an electric vehicle, but they account for just one in seven of all new sales,” said Plummer.
“Bridging that gap could unlock the mass market reach of EVs – but for that to happen, concerns over the cost of new EVs compared with traditional vehicles will need to be addressed, as well as the ability of the secondhand market to keep up with demand for more affordable used EVs.”