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The Most Radical Car Market In The World 2018-2019: Sweden

|About: Ford Motor Company (F), TM, TSLA, Includes: AUDVF, BMWYY, DDAIF, DMLRY, FCAU, FUJHF, FUJHY, GM, HMC, HNDAF, HYMLF, HYMTF, KIMTF, MZDAF, MZDAY, NSANF, NSANY, POAHF, POAHY, TTM, VLKAF, VWAGY, VWAPY
Summary

After introducing new anti-car legislation July 1, 2018, Sweden’s car market fell by 28% in the 12 months that followed.

However, there were also new and increased subsidies for some electrified categories of cars.

Pure electric cars (“BEVs”) increased in sales by 254% and are now 5% of total sales -- up from 1% of sales before the middle of 2018.

Several popular plug-in hybrids (“PHEVs") saw extreme supply constraints in late 2018 and in 2019, so they did not grow very much at all.

The overall impact to the Swedish car market from the new legislation was catastrophic overall, considering the overall dramatic sales decline.

It is well-known that Norway is the leading electric car market in the world. The reason for this, is that the absolute level of subsidies and incentives are likely the highest in the world, by a wide margin.

However, those Norwegian subsidies and incentives have been in place since at least 2013. There really hasn’t been any significant change since then. What’s changed in terms of electric car sales in Norway, is that as more attractive models have become available, they have mushroomed in the sales columns.

Tesla (TSLA) in particular has benefited from this. Here are the cumulative sales numbers for Tesla in Norway as it stood in the morning of August 29:

Model S: 20,406

Model X: 12,620

Model 3: 11,430

Obviously the Model 3 is growing the fastest of those, and will pass the Model X next month and then the Model S within a few months after that.

But what about Norway’s larger neighbor to the East, Sweden? It has approximately twice the population of Norway.

Here are Sweden’s pure electric car sales from the middle of 2017 to the middle of 2018, as a percentage of the total:

BEV

2017-18

% of total

Jul

194

1%

Aug

392

1%

Sep

313

1%

Oct

134

0%

Nov

170

1%

Dec

291

1%

Jan

186

1%

Feb

318

1%

Mar

746

2%

Apr

370

1%

May

278

1%

Jun

334

1%

TOTAL

3726

1%

As you can see in the table above, BEV (battery-electric vehicle) sales were running a nice round even 1% for the year leading up to the middle of 2018. But then something happened.

Sweden imposed the most radical comprehensive change in legislation of the automotive consumption sector, of pretty much any country, starting July 1, 2018. What did it do? It started taxing some cars more, and other cars less.

Basically, it lowered the annual registration tax for BEVs and some PHEVs, and increased it for almost all regular gasoline and diesel vehicles. The net effect was a huge tax increase, but some cars were taxed less.

Let’s see what happened to the Swedish car market overall, during this time period (July 1, 2018 to June 30, 2019):

Total

2017-18

2018-19

change

Jul

24722

12504

-49%

Aug

29915

24670

-18%

Sep

31672

19111

-40%

Oct

32112

23088

-28%

Nov

32484

25813

-21%

Dec

34958

22937

-34%

Jan

22980

20478

-11%

Feb

27211

23146

-15%

Mar

37206

30256

-19%

Apr

34215

30253

-12%

May

37687

31919

-15%

Jun

66244

31830

-52%

TOTAL

411406

296005

-28%

As you can see in the table above, the Swedish car market fell by 28% during the first 12 months of the new policy: July 1, 2018, to June 30, 2019. That’s a huge decline. Imagine a 28% fall in U.S. sales, from the current near-17 million unit run rate. That would bring the market down to 12.2 million per year, or approximately where the U.S. market reached in 2008-2009. It was bordering on national depression.

Diesel cars emit less CO2 than gasoline cars. What was the impact on diesel sales in Sweden from this new policy?

Diesel

2017-18

2018-19

change

% of total

Jul

11874

2832

-76%

23%

Aug

14074

7387

-48%

30%

Sep

15093

5854

-61%

31%

Oct

14657

7444

-49%

32%

Nov

13922

8738

-37%

34%

Dec

15654

8041

-49%

35%

Jan

9453

7903

-16%

39%

Feb

11916

8587

-28%

37%

Mar

15285

10488

-31%

35%

Apr

13434

11637

-13%

38%

May

14533

11328

-22%

35%

Jun

28994

10413

-64%

33%

TOTAL

178889

100652

-44%

34%

As you can see in the table above, diesel sales fell 44%. However, after the initial hit to sales right away in Q3 2018, diesel sales has been relatively steady as a percentage of sales. It stands mostly around 34% of the total Swedish new unit market.

The next step up the “alternative fuels” ladder is the “regular” non-plugin gasoline-electric hybrid -- the one that doesn’t plug in, just like the first couple of generations of the Toyota Prius:

Hybrid

2017-18

2018-19

change

% of total

Jul

1059

900

-15%

7%

Aug

1421

1599

13%

6%

Sep

1018

1613

58%

8%

Oct

625

1783

185%

8%

Nov

1254

1760

40%

7%

Dec

2005

1345

-33%

6%

Jan

1390

1305

-6%

6%

Feb

1135

1149

1%

5%

Mar

2145

1791

-17%

6%

Apr

1841

2146

17%

7%

May

2119

2603

23%

8%

Jun

2776

2626

-5%

8%

TOTAL

18788

20620

10%

7%

As you can see in the table above, such “regular” hybrid sales grew 10% and seems to have remained steady at around 7% of the overall market during this period. Obviously this category benefited from the new tax policies that took into effect July 1, 2018, and has been harvested particularly by Toyota (TM), which is of course the volume Godfather of hybrids, making them available in numerous of its nameplates.

Moving one step up from the non-plug-in hybrid situation, what about plug-in hybrids? (PHEVs)

PHEV

2017-18

2018-19

change

% of total

Jul

887

1905

115%

15%

Aug

1437

1979

38%

8%

Sep

1087

1725

59%

9%

Oct

893

1867

109%

8%

Nov

1500

1787

19%

7%

Dec

1936

1604

-17%

7%

Jan

1572

1567

0%

8%

Feb

1543

1892

23%

8%

Mar

1915

2288

19%

8%

Apr

1785

1707

-4%

6%

May

1704

1653

-3%

5%

Jun

2382

1744

-27%

5%

TOTAL

18641

21718

17%

7%

As you can see in the table above, something interesting is going on. The period started out very strong for PHEVs in Sweden, with huge increases for the first five months. Then, things turned largely sour, and the last three consecutive months were all down. Therefore, the net total of the period -- up 17% -- is not a great conclusion. It was up a lot more than 17% at first, and then it’s been in actual decline recently.

We can debate what the cause of this was. Have supplies of plug-in hybrids been too small? For sure, cars such as VW Passat GTE and VW Golf GTE went away during this time period. Home country favorite Volvo XC60 T8 also seems to have suffered a nasty fate, with recent 95% sales declines. The BMW 530e has been in decline, and the BMW i3 REx was discontinued at the end of 2018. Those all hurt the supply of PHEVs. The combination of all those cars going away or being in short supply, sure go a long way to explain the dismal sales results of PHEVs in Sweden for the first six months of 2019.

On the demand side, one might argue that BEVs (battery-electric vehicles) have simply taken over sales from PHEVs. Let’s take a look at BEV sales in Sweden during this time period, to see if that thesis holds water:

BEV

2017-18

2018-19

change

% of total

Jul

194

521

169%

4%

Aug

392

559

43%

2%

Sep

313

658

110%

3%

Oct

134

795

493%

3%

Nov

170

1203

608%

5%

Dec

291

1098

277%

5%

Jan

186

1084

483%

5%

Feb

318

896

182%

4%

Mar

746

2112

183%

7%

Apr

370

1374

271%

5%

May

278

1228

342%

4%

Jun

334

1673

401%

5%

TOTAL

3726

13201

254%

4%

As you can see in the table above, the growth in Swedish BEV sales has been dramatic, with growth of at least 182% every month since October 2018. It was up a total of 254% for the year (mid-2018 to mid-2019), and as a percentage of total Swedish car sales, it’s gone from 1% to what now seems like a solid 5%.

It seems evident that the lack of enough PHEV supply into the Swedish car market especially in the first half of 2019 -- but also to some extent in the second half of 2018 -- has driven the market more in favor of BEVs. Obviously, the skewed tax incentives -- in favor of BEVs vs PHEVs -- played their part too.

Conclusion: Radical changes to the Swedish car market

It is clear that the Swedish car market was re-arranged in the 12 months starting on July 1, 2018. There are ten major conclusions from what happened:

  1. Total number of cars fell by 28%.

  2. Non-plugin gasoline-hybrid sales were up 10% and has been sitting steady around 7% of the market, for most of the last year.

  3. Diesel sales fell 44%.

  4. However, diesel share has stabilized, for now, at around 34% of the total.

  5. Plug-in hybrid (PHEV) sales grew 17%.

  6. However, this 17% growth took place in the beginning of the 12-month period (mostly Q3, 2018) and has turned into an outright decline in the most recent quarter (Q2, 2019).

  7. PHEV sales look like they could have suffered from several popular models almost totally lacking in supply, especially in the last 3-6 months.

  8. For this reason, PHEV sales have fallen to 5% of the total market -- at least for now.

  9. The new policy led to a huge increase in Battery-Electric Vehicle (BEV) sales -- 254%!

  10. BEV sales have now come to reach 5% of the total Swedish car market.

Bottom line: The Swedish car market was an overall depression-sized catastrophe from July 1, 2018, to June 30, 2019. However, sales of some “new energy” cars did go up, particularly battery-electric vehicles (BEVs), as they are now 5% of the market mostly thanks to massive government subsidies.

Disclosure: I am/we are short TSLA.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long F. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.