New car purchases have fallen since their peak in 2016 and driving licenses are falling amongst the young.
In this blog, Matt Lyons, Kurt Kratena and Sara Hassan consider the question when will the UK reach peak car?
People are driving less
Figures from the DfT (Figure 1) show that the proportion of adults holding a driving license are not rising and in younger groups remain stubbornly low. The reasons for this perhaps reflect relatively lower disposable incomes and changing preferences. But it is also an important indicator about the future of car ownership in the UK.
Figure 1: Proportion of adults holding UK driving licenses by age group (2003 – 2023)
The demand for new cars is peaking
To understand whether the number of cars on the road is rising or falling we need to know two things:
- The number of new cars registered each year
- The number of cars removed from the road each year (implied deprecation rate)
On the former, these numbers are routinely published by the UK Government and industry groups. On the latter, we can estimate the depreciation rate by looking at the total number of vehicles Iveh,t licensed each year and the total vehicle stock in each year, Kveh,t, applying the following formula:
The change in the stock of vehicles between two years therefore can be decomposed into those vehicle licenses that just substitute those that have exited the stock (depreciations) and those that really represent new cars, i.e. the net car purchases.
Figure 2 shows this net number of car purchases (without depreciation) each year from 2001 to 2023 and then extrapolates a trend out to 2030. There are clear peaks and troughs in net cars each year with notably a falling number of net car purchases after the Covid-19 and Brexit conditions combined to form the so-called 2020 shock.
The trend of new car purchases (not depreciation) goes towards zero and that stabilizes the car stock – almost.
Figure 2: Net cars by year versus trend (2001 to 2030)
The total number of cars on UK roads may soon start to fall
The consequences of the above analysis mean that the total number of cars on the road has stabilised after a long period of growth. Figure 3 shows that the total number of cars on the road in 1994 was 21.2 million by 2004 it has risen by 27% to 27 million by 2014 the number rose by 10% to 29.6 million by 2024 the number is expected to rise another 10% to 32.6 million. Our analysis suggests that over the next six years to 2030 that number will rise to 32.8 million a meagre 0.7% rise.
Figure 3: The total number of cars on UK roads
A growing share of cars are electric
As demand for new cars is softening the type of vehicle being purchased is also going through a radical shift with the electric share of new purchases reaching 23.7% in 2023. To estimate whether this trend will continue analysis is conducted using a growth rate that decreases by a fixed factor over time.
Figure 4 shows the findings of this analysis which suggests electric vehicles could make up 100% of all new car purchases by 2030 if the trend continues. This will please UK Government and industry that is pivoting towards electric drivetrains as the sole system come 2030.
Figure 4: Share of new vehicles that are
We could use a similar method on implied depreciation rate to estimate the date all cars on UK roads will be electric?
What does this mean for the West Midlands?
Automotive is important sector for the Midlands region employing 44,000 full time equivalent (FTEs) employees and with 1/3 of all cars produced in the UK built in the West Midlands. It is important to the future economy of the region to understand the trends in demand for one of its key areas of competitive advantage.
There are opportunities
- EV economy – estimates suggest EVs will see rising demand over the next decade.
- Environment – fewer cars will mean lower emissions, reducing carbon footprints and lowering demand for fossil fuels.
- Health – fewer vehicles on the road means less air pollution and more active travel is linked with improved health.
- Wellbeing – Falling car dependency presents an opportunity to hand over space to people. Increasing the vibrancy of towns and communities.
There are risks
- Risk to industry – Falling demand for a key export of the region could have consequences for regional resilience and employment.
- EV economy – There are concerns the domestic automotive market is ‘losing the race’ to produce competitive EV products with a ‘gigafactory gap’ stymying production.
- Social Equity – The regions industrial composition will change in the face of falling demand for manufacturing labour. A failure to appropriately reskill and manage the transition will have strong negative impacts for groups within the region.
How can policy respond?
The analysis suggests that the UK will hit peak car in the early 2030s. Alongside this, we are likely to see a steep drop off in demand for ICE vehicles.
Regional policy should be informed by this trend and act under the assumption the future will not look like it does today. The concept of policy being informed by the long-term trends is explored in the report, Megatrends in the Midlands. The report links long-term global megatrends to impacts in place. ‘Peak car’ should be viewed in similar terms where ‘megatrend informed’ policy acts on the basis there will not be ever growing number of cars on the road.
Policy should act to seize the opportunities and mitigate the risks. Some ways in which it might do this:
- Transport infrastructure – Demand for road space is peaking, meaning there should be less emphasis on car centric infrastructure projects.
- Active travel – There is an opportunity to invest more in adjusting for a world with more active travel which has the co-benefits of helping reach health/wellbeing and climate objectives
- Just transition – As is well established, ICE vehicle demand is anticipated to fall sharply. This demand may not wholly be replaced by EV vehicle demand. As such policy should be considering how it can support the transition to EV production, ensuring supply-chain readiness (i.e. EV parts can be sourced in region). But, also preparing for a region with potentially lower demand for a key export, automotive products.
- Skills Agenda – Related to this transition is ensuring that skills training in the region is calibrated for a region that will have lower demand for manufacturing skills.
This blog was written by Matt Lyons, Research Fellow, City-REDI / WM REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WM REDI or the University of Birmingham.