Car Importers in Israel Grapple with War-Induced Challenges and Impending Tax Hike

Preliminary data from Carzon, a car market data site, reveals that vehicle deliveries in Israel during October saw a less severe decline than anticipated. A total of 11,985 cars were delivered in October, marking a 30% drop compared to the same month in 2022. For context, September saw 18,119 new cars delivered, and August saw around 24,000. Leading brands like Toyota and Hyundai showed remarkable resilience with only minor drops in deliveries compared to last year. However, it's crucial to note that these delivery figures reflect pre-war orders that were fulfilled in October.

The impact of the recent war in the region appears to have hit the new car ordering process more severely. While exact figures are not yet available, importers report a significant 30% to 50% decrease in orders compared to their initial forecasts. Importers had initially expected strong sales in the last months of the year due to an upcoming tax increase scheduled for January, particularly on electric cars.

Several factors have contributed to this challenging situation. The economic aftermath of the war has left many businesses and workers struggling, alongside a substantial recruitment drive into military reserves and a general decline in national morale.

Compounding these issues, around 80,000 new cars, especially electric and plug-in hybrids, are currently held in Israeli ports and adjacent hostage areas, with unpaid taxes. These vehicles were imported ahead of the impending tax hike, set to increase the tax rate on electric cars from 20% to 35%, and on plug-in hybrids from 50% to a hefty 83%.

The devaluation of the Israeli shekel against major foreign currencies like the dollar and euro further complicates matters. Importers now face a 15% higher tax burden than they initially expected. While importers have some protections against currency fluctuations, including agreements with manufacturers and currency hedging, the rapid 6% appreciation of foreign currencies in just a month has caught them off guard.

Additionally, the cost of cars has risen due to increased marine insurance expenses, which are included in the overall calculated price, and upon which the purchase tax is levied at the 83% rate.

Union Motors, a prominent Toyota importer, has already announced a price increase, with models like the Toyota Corolla and C-HR becoming NIS 3,000 or more expensive.

Despite the challenges, there seems to be little chance of the tax authority postponing the planned tax hike on electric vehicles. Most cars are unlikely to be released until next year, carrying the higher tax rate. Importers are cautiously optimistic, hoping for a stronger shekel in the future.

Given the ongoing war's uncertainty and its impact on the economy, importers have minimized their orders from car manufacturers and plan to sell their current stock at relatively high prices in the coming year. Importers believe this will create excess demand, enabling them to sell at higher prices without the need for special promotions. The war has also delayed the launch of new brands in Israel, such as Xpeng, Neo, Winfast, and Smart, which will now debut at higher prices in a market still recovering from the conflict.

Some importers, however, are running promotions to reduce inventory before the January tax increase. Lubinski, for example, offers discounts for its "Hot" customer club, including significant savings on the electric MG4 and Peugeot 3008. Telcar is offering a special sale on the electric Kia Niro, with a NIS 20,000 discount. These promotions are aimed at enticing buyers before the impending tax hike takes effect in January.