Motor finance in 2025: driving the shift to BEVs amid industry disruption

The road to electrification continues to reshape the automotive landscape, with affordability, infrastructure, and new market entrants poised to dominate the agenda in the year ahead.

2024 in review

As 2024 draws to a close and we look ahead to 2025, it's important to reflect on the profound changes the automotive industry has undergone over the past year. From disruptions in supply chains and manufacturing to shifts in financial services, sales, and residual values for BEVs, the entire ecosystem has weathered a period of considerable turbulence and transformation. This article explores key aspects of this evolving landscape, including:

• The transition from internal combustion engines (ICE) to battery electric vehicles (BEVs)
• The development of charging infrastructure
• The growing presence of Chinese market entrants
• Challenges faced by legacy European OEMs
• The impact of EU tariffs on imported Chinese vehicles

From ICE to BEVs: the transformation continues

One thing is certain, the 2020s is both the most exciting and the most demanding time to be working in our industry.

On one hand, it's exhilarating to see how the shift to BEVs is transforming market dynamics, on the other hand, many challenges must be resolved in the short to medium term. The bulk of mass-market consumers remain uncertain about BEV technology. Consequently, many retail consumers are deciding to opt for PHEV as a stepping stone.

Moreover, the combination of pervasive negative press surrounding BEVs and the lack of easily accessible/plentiful public charging points creates the perception that charging a BEV away from your garage or driveway (if you have the luxury of either) is fraught with difficulty compared to filling the tank of an ICE vehicle with petrol or diesel. Today, I believe the fear of inadequate access to public charging points occupies equal first place with, what has rightly or wrongly until now been consumers' primary concern, 'range anxiety'. The irony is that both fears are irrevocably intertwined - solve one issue, solve the other!

But recent good news from the UK's Department of Transport is that public electric vehicle charge-point installations are on track to meet the minimum 300,000 needed across the UK by 2030
is indeed worthy of celebration. That being said, there are concerns surrounding the geographic accessibility of the charging points themselves. Undoubtedly, more needs to be done concerning public infrastructure and, in my opinion, it will be actioned because infrastructure is key in supporting the shift from ICE to BEV before the UK's ban on the sale of ICE cars comes into force in 2030.

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Affordability: the next hurdle in BEV accessibility

The other big bear in the room is price. The disparity between new ICE vehicles when compared to similar new BEVs remains significant but happily, is narrowing.

According to a recent Carwow report, like-for-like comparisons in the new car market showed that the average RRP for a new BEV is GBP53,531, while the average for an ICE vehicle is GBP41,692 - a 28% gap. This remains a huge barrier to entry for retail consumers. However, in recent months we have witnessed the application of massive marketing support by NSCs in an attempt to support the sales of BEVs to reach the government's ZEV mandate of 22% by year-end - or shoulder a fine of GBP15k per unit of the shortfall between actual unit sales and the ZEV 22% target.

2025-2026: Chinese brands set to drive BEVs

Over recent years, new entrants from China have been preparing the ground for the long term: busy scouting the commercial landscape and setting up shop in the UK and Europe with brands such as MG, BYD, Polestar and GWM's ORA at the vanguard of activity.

Accordingly and in fairly short order, these brands have garnered meaningful consumer awareness and, in MG's case, notched up significant market share in UK and the EU4. These nameplates are certainly becoming well-recognised car companies. But this is merely the tip of the iceberg as many more OEMs from China look to establish business units in UK and Europe; the arrival in recent months of OMODA with their sister premium brand JAECOO are two such examples.

Both brands fall under the ownership of Chery International which is one of China's largest independent manufacturers of passenger cars, producing more than 1.8m units in 2023.

Learning from the past to shape the future

More than 50 years ago obscure automotive companies from Asia set up shop in Europe. Today, they have become household names and a watchword for quality. Cars produced by Toyota, Honda and Nissan (formerly Datsun) first went on sale in Europe in 1963, 1966 and 1968 respectively, and were followed in 1978 and 1991 by Hyundai and Kia.

These world-renowned Japanese and Korean brands built their reputation and market share on the reliability and value for money offered by their vehicles. New Chinese brands will be no different. However, in the case of BEV manufacture and its supply chain China enjoys unprecedented competitive advantage over European legacy OEMs.

Armed with this formidable edge, I believe the national sales companies of these new entrants will prove a force to be reckoned with, powered by: 1) First class product
2) Long-term strategy
3) Absolute commitment to success in Europe
4) Distribution via trusted dealer networks
5) Significant, sustainable marketing budgets
6) Shorter product lifecycles In my opinion, this strategy will generate massive visibility among consumers.

In turn, this will create a large bank of prospective buyers who will be served by a network of well-established and respected franchised dealer groups the length and breadth of the EU4 and UK. Compared to the Japanese and Korean brands, the major difference between the Chinese brands is this: the Japanese and Koreans had to go toe-to-toe with the established legacy European OEMs to win sales with ICE products. Today, it's both similar and completely different.

Because BEVs are new technology and because the Chinese OEMs occupy pole positions in the BEV space, the time required to secure meaningful market share for Chinese brands will be shorter. Moreover, in the EU4 and UK, there is a finite volume of new car sales annually, albeit variable. As a consequence, the bulk of Chinese market share will come at the expense of established but vulnerable European legacy brands.

The tipping point: Chinese BEVs

I believe that 2025-2026 will witness a seismic shift in the adoption of BEV's in the UK and EU4.

These new kids on the block from China are the driving force behind price alignment and mass market acceptance of BEV's by retail consumers.

15 years of transformation: Chinese BEVs

European OEMs have rested on their laurels for far too long and frankly, are now paying the price for their lack of vision and action in the development of new energy vehicles. Consider this: the first car designed and manufactured by China's Build Your Dreams, the BYD F3, began production in 2005. Three years later, BYD launched its first plug-in hybrid electric vehicle, the BYD F3DM, followed in 2009 by the BYD e6, its first battery electric vehicle.

In 2023, in less than 20 years of manufacturing cars and 15 years from the company's first BEV, Build Your Dreams became the world's largest electric car company, selling 2.7 million battery electric and hybrid vehicles. As I say, hardly believable but it's true...

The EU's tariff strategy: levelling the playing field

In addition to the EU's standard 10% car import duty, these tariffs range from 7.8% to 35.3% and are scheduled to remain in place until October 2029. Tariffs are seen as a protective measure to level the playing field, ensuring fair competition and supporting the local automotive industry.

EU officials have cited the need to address subsidies received by Chinese manufacturers which they argue lead to price distortions in the market. The proposal has stirred discussions on trade relations with potential impact on both the European and Chinese automotive sectors, influencing trade negotiations and industry dynamics. China's response and potential retaliatory measures are also key factors to watch as the situation develops.

Catching up too late?

The struggles of European OEMs

Understandably, the EU are playing for time to give homegrown OEMs who desperately need breathing space, to get up to speed with the competition from China. When you are late to the party, playing catch up is extraordinarily difficult, especially in the world of software-defined vehicles (SDVs) where China is far ahead of Europe. This, in addition to an established supply chain for critical components (most typically battery tech) and considerably lower labour costs, means the struggle for European manufacturers is decidedly more uphill.

Looking ahead: challenges and opportunities for 2025

As we step into 2025, the automotive industry stands at the cusp of further transformation.

While challenges persist, the industry's resilience is bolstered by innovation, strategic consolidation and consumer demand for sustainable mobility solutions, setting a positive stage for continued evolution.

The next year promises to be another pivotal chapter in the transition toward a more sustainable and technologically advanced automotive future.

Paul Bennett is a Senior Partner at Madox Square LLP

References

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