Cars are increasingly expensive and it's the fault of electric cars (and the EU): here's why

ROME – The acceleration towards the electric transition imposed by Brussels has been one of the main causes of the increase in car prices recorded in Europe in recent years and has generated a cut in the offer of economically accessible 'entry level' models, causing a drop in sales and forcing consumers to choose between more expensive vehicles or not buying a car at all. This new scenario threatens the future of both manufacturers and dealers who, if they want to win the challenge, must react quickly by reviewing product portfolios, offer structures, pricing strategies and financing models. Jato Dynamics, together with Oliver Wyman, a global management consultancy and division of Marsh McLennan, analyses this situation, taking as an example the largest car market in Europe, the German one. Here, over the past five years (2019 to 2024), market growth has been driven primarily by a substantial 40% increase in the average list price of vehicles (from €30,163 to €41,781), against a 22% decline in volume, despite a 24% increase in net wages. This price increase was driven 17% by the increasing adoption of more expensive electric vehicles (one third of which is battery electric, the rest mild hybrids and plug-ins) and 23% by inflation and economic factors.

The 'Automotive Pricing Study' specifies that, in five years, both combustion and battery-electric vehicles have recorded similar price increases of around 35-40%, but the increase in electric vehicles has had a greater impact due to the collapse (-55%) in sales of thermal vehicles and the surge in electric vehicles (+504%).

Regarding the 22% drop in sales, it was most significant in the price range below 30,000 euros (-1.4 million units), because electrification in the small segment led to a price increase that many traditional customers could not afford. While the higher price ranges grew (+100,000 units between 30 and 40 thousand euros and +500,000 above 40 thousand), but not enough to compensate for the decline. The largest contraction in volumes was recorded in the mass segment (-31%), probably due to the exit of the cheapest vehicles and the less successful sale of more expensive vehicles. The premium segment instead recorded a 17% drop in volumes.

The study highlights that, despite a 24% increase in net wages, the affordability of cars in Germany has decreased significantly over the last five years (-11%) and in fact financing and leasing formulas have increased, including new subscription models. Yet, in this difficult situation some entry-level brands have prospered. The study gives the example of an unidentified manufacturer (which is presumed to be Dacia of the Renault group, whose Sandero was the best-selling car in Europe in 2024) that, despite increasing prices by 48%, recorded a 19% increase in sales, maintaining a low average price of around 15,000 euros. An example that demonstrates how constant attention to the right balance between quality and price will be a crucial factor in the coming years. Unless, the study specifies, in a contracting market and with a declining segment of wealthy customers, car manufacturers do not want to put their long-term sustainability and profitability at risk.