Europe sales jump 11% in January on pent-up demand

Passenger-car deliveries in Europe gained 11 percent in January as automakers such Volkswagen Group and Stellantis fed off order backlogs and demand for electric cars recovered.

New-vehicle registrations rose to 1.02 million units last month, the European Automobile Manufacturers’ Association said in data released on Tuesday.

Battery electric vehicles made up 12 percent of total deliveries, up from 10 percent a year ago as automakers seek to reboot purchasing amid a bruising price war.

While automakers continue to benefit from healthy order books, a recovery to pre-pandemic levels will get more challenging this year.

Economies are slowing in Germany, the U.K. and France — the region’s three biggest car markets — adding to consumers’ concerns as they struggle with high borrowing costs.

“The reversal of a trend of demand exceeding supply — which has persisted since the second half of 2020, pushing pricing and profit margin higher — is a key industry risk this year as vehicle output normalizes and orders soften,” Bloomberg Intelligence analysts Michael Dean and Gillian Davis said in a note.

Germany’s economy may shrink slightly in the first quarter, according to Bundesbank president Joachim Nagel, while France on Sunday lowered its economic forecast and now expects just 1 percent growth this year.

The U.K. slipped into a recession during the second half of last year.

Any softening will add to concerns over waning growth in EVs.

While deliveries of battery electric vehicles jumped 29 percent in January, their share of the market was at the lowest in a year.

EV market share “may stall this year due to consumer apathy,” Dean and Gillian said, predicting only a marginal increase to 16 percent of sales.

Cooling enthusiasm in the EV transition is putting pressure on automakers to recalibrate strategies while they remain on the hook for increasingly stringent European Union regulation to cut CO2 emissions.

Governments such as Germany are rolling back incentives, weighing on demand. And Tesla’s price war, while making cars more affordable, is rippling through the industry with collapsing used EV prices turning off buyers from making the switch.

A number of manufacturers are delaying rollouts of new models and car-rental companies are paring purchases for their fleets.

Renault, which is banking on a major product revamp this year, is in discussions with other automakers to reduce the costs of new EVs via partnerships.

“We do not see EU battery-electric vehicle sales growth improving through the year,” Citi analysts led by Harald Hendrikse said in a note.