As we move into the latter half of 2025, the UK motor sector finds itself at a pivotal moment, buffeted by lingering economic pressures, evolving consumer behaviour, and an accelerating shift toward electrification.
While the first half of the year was shaped by inflation, margin compression and geopolitical uncertainty, the tone is shifting. The data points to the third quarter bringing signs of stabilisation and recalibrated optimism.
Markets, both public and private, are showing resilience, and the automotive sector, long overdue for structural realignment, is beginning to glimpse what a new normal might look like.
The new-car market continues its uneven recovery. July registrations dropped 5%, a reminder that affordability remains a key concern for both private buyers and fleets. However, year-to-date volumes are still up compared to 2024, prompting a modest upward revision in forecasts.
According to the SMMT’s latest data, the UK new car market is forecast to grow by 1.7% in 2025, reaching 1.986 million units, slightly higher than April’s projection of 1.964 million.
Battery electric vehicle (BEV) registrations are expected to surge by 23.7%, taking market share to 23.8%, while plug-in hybrids (PHEVs) are set for a 29.7% rise, boosting their share to 10.9%. Hybrid electric vehicles (HEVs) are also projected to grow by 9.9% in volume, achieving a 14.5% market share. In contrast, diesel sales are forecast to fall by 13.0%, reducing their share to 5.4%, and petrol sales are expected to decline by 11.4%, with market share dropping to 45.5%.
Electrification remains central to the industry’s evolution, but uptake continues to lag expectations. Battery electric vehicles accounted for just over 20% of sales earlier this year, falling short of the targets set by the Zero Emission Vehicle mandate. Incentives remain confusing and insufficient, stalling momentum at a time when clear, confident policy signals are sorely needed.
Meanwhile, the light commercial vehicle (LCV) sector is underperforming, with registrations expected to fall by 8.7% in 2025 to 321,000 units, down from April’s 337,000 forecast. Business confidence remains fragile, with operators prioritising cost control over investment in new vans. BEV LCV volumes are forecast to rise by 35.1%, reaching an 8.6% market share (down from April’s 9.1% view), but overall penetration remains below 10% amid subdued demand, limited government incentives, and inadequate charging infrastructure for fleet operations.
While the new market struggles to gain traction, the used-car sector is holding up well. Prices remain stable with strong consumer demand continuing to drive brisk turnover.
AutoTrader reported that used vehicles are now selling more quickly than they were pre-pandemic, and retailers are still enjoying decent margins and relatively low levels of price adjustment, which has been a welcome reprieve after two years of turbulence.
Yet beneath this apparent stability lies a more complex reality. Supply constraints are still biting. Stock levels remain far below pre-pandemic norms, particularly in key segments like small petrol hatchbacks and younger used EVs.
The shortages are a result of the pandemic when factory shutdowns, reduced leasing activity, and lower fleet registrations drastically curtailed the flow of vehicles into the used market. The result has been a structurally under-supplied landscape in 2025.
Dealers are selling cars quickly, but finding replacements remains a daily struggle. Until a more consistent pipeline of defleeted vehicles and part-exchanges is restored, this imbalance will persist, keeping prices artificially high and limiting consumer choice.
At a more systemic level, production issues continue to drag on the industry’s ability to regain its footing. UK car and van manufacturing has fallen sharply, with H1 output down over 12%, the worst non-pandemic start to a year since the early 1950s. In May, vehicle production fell to a 76-year low.
The UK’s export-led manufacturing model is under stress, and the recent tariff tensions with the US have only added to the disruption. Though a quota deal was eventually brokered, limiting tariffs to 10% on a capped volume of exports, the damage to confidence and scheduling has already been done.
High-end manufacturers, in particular, are having to rethink their international strategies.
All of this adds up to a second half of 2025 that remains delicately poised. There is resilience in consumer appetite for mobility, and used-car performance is outperforming expectations. However, new car sales, especially electric ones, remain in limbo, squeezed by high borrowing costs and waning incentives.
If there is a common thread running through the year so far, it is uncertainty. Retailers, OEMs, and suppliers alike are adapting to a post-pandemic, high-cost, high-regulation environment where agility matters more than scale.
Those able to flex their models, manage inventory more effectively, engage customers digitally, and pivot toward high-demand sectors, are best positioned to weather the volatility. There is still ground to cover before we can discuss recovery with any certainty. But for those bold enough to act decisively, the remainder of 2025 may yet offer a route back to growth.
Mike Allen is the managing director of Cambria Private Capital