The Israeli automobile market ended the first half of 2023 with a pass mark only. Although 174,000 directly imported vehicles were delivered between January and June, a respectable total and representing a 10% rise in comparison with the first half of 2022, the market was chiefly closing gaps in supply that arose last year.
Were in not for this catch-up process, particularly by the leasing companies, the delivery figures for the first half would presumably have been much lower, and perhaps even below those for the first half of last year, mainly because of the end of cheap credit, which in the past few years has been one of the main drivers of the market.
The ray of light in the first half year was the electric vehicle (EV) segment. Nearly 29,000 EVs were delivered in the period, representing an increase of 219% over the corresponding period of 2022, and surpassing the 27,600 EVs delivered in the whole of last year. EVs almost tripled their share of the Israeli new vehicles market, to 16.3% of deliveries. Nevertheless, this segment is still far from being stable, and faces several challenges, as well, perhaps, as opportunities.
High market concentration
The EV segment looks competitive, and only last month we learned that three new Chinese EV brands were on their way to Israel. The delivery statistics, however, show a concentrated market, similar to the vehicle market in general. 73% of the EV deliveries in the first half were of four leading brands: Geely, BYD, Tesla, and Hyundai.
The concentration largely stems from the fact that the segment is still young, and the model ranges of the various brands are not homogeneous. Some brands focus solely on the luxury end of the market, where market penetration in Israel is still very low. Others are still limited by their manufacturers’ supply volumes, or suffer from standards restrictions. There are also new players that only entered the market in the second quarter and that have not yet managed to make an impression.
The bottom line, though, is that the segment is dominated by brands that came in early and that offer products well adapted to the Israeli market, the backing of a large vehicle manufacturer, and a comprehensive sales network of large importers. The only exception among the group at the top is Tesla, which made a respectable comeback in the first half, mainly thanks to significant price cuts, but which still lags behind when it comes to building a marketing and sales support network. After two years in the market, it still lacks a permanent showroom and a nationwide independent service network. At any rate, the success of the major brands represents a considerable barrier to entry for late comers.
Another conclusion that can be drawn from the half-year EV sales figures is that, despite the impressive growth and substantial market share, the segment’s true potential is far from being exhausted. The average list price of an EV in Israel in the first half-year (excluding discounted prices for leasing companies) was NIS 165,000. This means that even "popular" models sold in Israel are still aimed at a relatively well-off clientele.
Such models still barely penetrate their natural market, that is, people who are particularly sensitive to the costs of running a car, such as fuel costs. A contributing factor here is high interest rates on vehicle financing, which makes things difficult for those with a low budget to migrate upwards to the EV segment.
There is no doubt, however, that if some EV brand were to pick up the gauntlet and sell a family EV in Israel for NIS 140,000-145,000, with a range of over 400 kilometers, which is the psychological threshold for people switching from gasoline cars to electric, such a move could expand the EV segment considerably.
For the time being, this is not happening, not with MG, which recently launched its MG4 model, and not with Geely, which has launched its updated Geometry model. Both brands are keeping the long-range versions of these models close to the average price for the segment. The official reason for this is the weakness of the shekel, but it is almost certainly also caused by the desire to maintain a wide margin for discounts to the leasing companies.
Dolphin’s potential
All the same, there is at least one potential gamechanger, namely BYD’s Dolphin, which will be launched in Israel shortly. This model recently reached the European market with a spacious passenger compartment (a 2.7 meter wheelbase), and strong engine, generous accessories as is the norm with the Chinese brands, and, most importantly, a range of 427 kilometers per the WLTP standard.
The price has yet to be published, but it’s fairly safe to bet on a range of NIS 140,000-145,000, because BYD has three reasons to give the new car an aggressive penetration price in the Israeli market. First of all, Israel has become BYD’s flagship market for exports and sales. The brand’s consistent leadership of the Israeli sales table is a marketing asset that it exploits well back in China. Incidentally, its sales give the brand’s importer, Shlomo Motors, an unusually strong position vis-à-vis the manufacturer, which it will probably take advantage of to gain flexibility over pricing.
The second reason is that BYD, unlike most of its direct competitors in Israel, already has a mid-market model, the Atto 3, which starts at NIS 163,000, and which was the best selling private car in Israel in the first half year, with 9,300 units sold. The importer and the manufacturer will therefore presumably seek to price the new model well below its big sister, especially since the Dolphin does not have that model’s high-status crossover configuration.
The third reason is that, as in the case of every new EV model launched at a relatively late stage, the pricing of the Dolphin will have to take into account the rise in the rate of purchase tax on EVs due in January 2024 from 20% to 35%. This means that the importer has a narrow window of opportunity for accumulating a significant mass of sales for a new model before prices in the whole market become less affordable.
The approaching purchase tax hike is undoubtedly the elephant in the room in discussion of the EV segment’s potential. At the moment, the Ministry of Finance is showing no sign of any intention of pulling back from the plan to raise purchase tax, which means that at the start of 2024 all prices in the market will move up a level.
The importers will presumably bring in sufficient stock at the end of 2023 to maintain the old prices in the first two quarters of 2024. Similarly, car fleets can be expected to stock up massively with EVs in the next few months, since the tax hike promises that they will be able to sell off stocks in early 2024 at a considerable profit. It will therefore not be surprising if EV sales surpass 50,000 units this year. In the long run, however, when the disruption caused by the tax hike dies down, it will be a severe blow to the segment.
Published by Globes, Israel business news - en.globes.co.il - on July 4, 2023.
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