Policy changes pave a bumpy road for Swedish sales

Sweden’s impressive recent automotive sales are closely related to changes in taxation. But the medium-term impact could be damaging.

Ben Trevis, Research Analyst

05 November 2021

While the pandemic and supply-chain issues have severely disrupted global vehicle sales this year, Sweden’s recent automotive performance has been closely linked to changes in taxation. 

The Swedish market began 2021 with the scrapping of a temporary policy previously aimed at boosting demand for greener vehicles. March then saw adjustments made to the ‘bonus-malus’ scheme, which, despite the bleak economic environment at the time, led to the most successful sales month for any March on record. The ‘bonus-malus’ scheme essentially rewards consumers who buy a vehicle that emits a relatively low rate of carbon dioxide, while penalising – or imposing a ‘malus’ – on the purchase of a vehicle with relatively high CO2 emissions. 

At the end of March this year, the bonus for plug-in hybrids was lowered by an average of Kr10,000, while the bonus for EVs was increased from Kr60,000 to Kr70,000, leading to a large pull-forward in sales of plug-in hybrids.

To complicate matters further, three months later, company-owned Personal Vehicles saw the ‘benefit tax’ (a tax burdened by an employee who uses a vehicle within their company) increase by 25% overall, causing yet another pull-forward in sales during June.

While Sweden’s policy changes make for some impressive monthly results, the medium-term impact could be damaging for overall demand. Higher taxes, in various forms, will undoubtedly discourage some consumers (or companies) from purchasing new vehicles. The incentives seen in many markets across Europe aimed at pushing buyers towards greener alternatives could cause some consumers to move away from the new vehicle market entirely as most EVs are yet to meet the lower price point that similar combustion-engine models currently offer.

Expanded taxation stemming from both the increased pressure on governments to meet tougher environmental targets, as well as the need to raise funds to address the huge spike in public debt arising from the pandemic could damage new vehicle sales and, therefore, the wider industry. But do developed nations in Europe really have a choice?

We forecast a muted end to the year for the Swedish vehicle market, due to some consumers pulling forward their purchase decisions in H1 to benefit from policy changes, as well as the damaging impact of the auto chip crisis, which is holding back demand across Europe.

*The Seasonally Adjusted Annualised Rate of sales (SAAR) aims to capture the underlying level of market demand, accounting for seasonality for each month and transforming sales into a more meaningful annualised figure.