2024-01-29 13:00:55
The Israeli automotive industry is expected to start the 2024 sales year with respectable momentum – considering the circumstances. Although the figures will not be close to January of last year, when over 47 thousand new vehicles were delivered, the expectation is that this month about 30-35 thousand vehicles will hit Israel’s roads. This is an impressive figure in light of the fact that Israel is in the midst of a war and in a state of uncertainty in the economy.
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A large part of the new vehicles that are expected to be sold in January and probably also in February, are electric. The industry estimates that their share of all deliveries will range from 20% to 30% in January, and there are several good reasons for this. The first is that fuel prices are climbing rapidly and will probably remain high for the foreseeable future, due to the Houthis’ threat to shipping lanes in the Red Sea and fears of the expansion of the war.
In addition, the prices of most electric models on the market still do not reflect the purchase tax increase in January, due to the accumulation of large stocks before the tax increase. And finally, the new “green tax” outline published by the Treasury as part of the budget promises a jump in the taxation and prices of electric vehicles starting at the beginning of 2025, and with it a corresponding increase in the prices of used electric vehicles, at least on paper. A kind of “guaranteed return investment” sponsored by the government.
Many new players
The main reason for the acceleration of sales in January is the surge in the supply of electric brands and models made in China in the price range of about 150 to 350 thousand shekels, recorded in recent months.
Below is a list of the new Chinese players in the segment, which were launched in Israel since November 2023 and joined the existing offer: XPENG with two models; NIO with two models (and soon two more will join); “Smart” with one model and another soon; ZEEKR with two models; NETA, which will land by the end of the month with an electric crossover; BYD, which is entering the market in the coming days with an electric sedan/executive car; and Chery, which entered the electric segment for the first time this month with a family crossover.
Each of them is determined to present the Chinese manufacturer with impressive initial penetration data, which is not an easy task considering the amount of new competitors, and the defensive moves of the “old” brands. The result, which is already felt, is a flood of advertising campaigns and investments, which create a deafening marketing “noise” and focus public attention on the electric segment.
Along the way, the “noise” also neutralizes the effectiveness of the “negative news”, such as the decrees that appeared in the last budget, which included the cancellation of the annual toll benefit for electric vehicles in January 2025 and the imposition of a travel tax in 2026.
At the same time, most of the importers, and sometimes the manufacturers themselves, are currently showing a willingness to suffer a decrease in their profitability in the short term in order to establish penetration in Israel or protect their existing share. This is manifested in a variety of overt and covert discounts and promotions, as well as vigorous work with the vehicle fleets accompanied by deep institutional discounts. We are also beginning to see a completion with “cannibalization” of other “in-house” models. That is, a situation where the importer takes sales from his own established brands and models to establish the penetration of the new brand.
The customers are enjoying themselves, in the meantime
Such fierce marketing battles are usually good for customers. This is a fundamental change after the last two years, which were characterized by a continuous shortage of car supplies due to the “chip crisis”, resulting in long waiting times and cancellation of discounts.
But this situation may be temporary. Importers of vehicles manufactured in Southeast Asia are already beginning to suffer supply disruptions due to the attacks in the Red Sea. The frequency of arrivals of ships transporting vehicles from East Asia to Israel has recently decreased from three to four times a month to once every two months, and the situation may worsen if the phenomenon of denying international insurance to ships that transport goods to Israel from the East, even indirectly through an intermediate destination in Europe, expands.
Although the situation does not cool the enthusiasm of the new Chinese brands and the importers to record impressive sales performance in Israel. But if the logistics crisis is prolonged, the arrival times of the next stocks will be very long and the sales momentum will “cool down” in the next quarter.
In the longer term, there is another strategic threat to the penetration momentum of electric vehicle brands from China to Israel. As you know, only vehicles that meet European or North American standards can be imported to Israel. For the past two years, the Biden administration has blocked the import of Chinese vehicles to the US, so this option has fallen out of favor.
“Suspicion of floating policy”
Europe has until recently been a desirable export destination for any electric vehicle manufacturer from China that wants to make a mark or at least cut coupons through a capital market offering. But Europe is also now gradually becoming a “hostile territory” for them.
The war is being waged on several fronts. In September of last year, the European Commission announced the start of an investigation “on suspicion of floating policy” against Chinese car manufacturers operating in Europe. Since then, the Union investigators managed to collect a lot of documents and information, and this month they took the investigation to the car manufacturing plants in China itself.
The results of the European investigation will be published at the end of the year, and if it is proven that Chinese vehicles sold in Europe do receive subsidies from the Chinese government, they may be fined with heavy levies.
We should note that Europe also has a lot to lose if it starts a “car war” against China. Just this week, China’s ambassador to the EU sent a clear threat and said that “Europe also subsidizes its companies and if there is a Chinese counter-investigation on the subject, it will attack many areas.” But in the meantime it seems that the Europeans are not backing down from the investigation.
Another front is France’s new “nationalist” subsidy policy for electric vehicles, which went into effect at the beginning of January. According to it, the eligibility of any electric model for a government subsidy is measured according to the emission in its entire life cycle, including the extraction of raw materials, the production and the transport. It is clear that under such conditions the Chinese are at a disadvantage, and indeed in the list of models eligible for subsidies published this month in France there is not a single electric model.
The “last nail” is Germany’s decision to cancel all government subsidies for electric vehicles starting in January. This is indeed a horizontal effect, but it is still especially burdensome for young manufacturers from China, who do not have “deep pockets”.
As a result, an electric vehicle manufacturer from China that planned to invest a huge fortune in the coming years in European standardization for new electric models in the future, and in establishing a marketing infrastructure across the continent, has only three ways to survive the attack: to establish a production plant in Europe at a cost of billions; to finance the disappeared government subsidies from his pocket; and withdraw from Europe. Either way, it is clear that if Chinese manufacturers withdraw from Europe, there will be no continuity for their marketing in Israel either, and the flood of sales of Chinese electric cars at the beginning of the year may turn into a trickle later on.
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