Forecasting car price trends in volatile markets

For OEMs, car price trends have become one of the most urgent and complex challenges in today’s volatile automotive landscape. Compliance deadlines are shifting, becoming less predictable, disruptors are resetting market expectations, and tariff-related cost inflation is compressing margins.

At the same time, legacy pricing models — based on stable product cycles and historical data — are increasingly obsolete.

To make effective pricing decisions, OEMs must respond to faster-moving market pressures with less room for long-term planning. In this environment, dynamic, scenario-based strategies that account for regulatory, competitive, and cost-driven complexities are more critical than ever. 

To adapt pricing strategies and forecasts effectively, it’s essential to understand the forces reshaping the market.

Regulation-led compression

In Europe, OEMs are under pressure from the EU’s CO₂ compliance targets and the UK’s zero-emission vehicle (ZEV) mandate. These regulations are forcing OEMs to make electric vehicles more affordable sooner than planned, often before next-generation cost-saving platforms are ready.

OEMs like VW Group, Stellantis, Renault, and Hyundai/Kia have already introduced mid-cycle price cuts and entry-level BEVs to stay compliant. 

Disruptor influence

Beyond regulation, fast-moving disruptors are forcing OEMs to rethink pricing strategies more aggressively and earlier than anticipated. Tesla’s aggressive pricing continues to set competitive benchmarks, while Chinese OEMs are accelerating pressure across Europe. These actions are reshaping car price trends on a global scale.

Geopolitical and cost factors

Internal cost structures and geopolitical dynamics are adding another layer of volatility, especially in the US:

• Tariffs are driving up vehicle costs, with OEMs absorbing up to $200 million/month in losses.
• Post-COVID inflation, rising materials, logistics, and labor have driven a 26% increase in average vehicle prices (2020–2025 YTD), with another 4.6% expected in 2025. These economic shifts are directly influencing car price trends in key markets.

With global pricing strategies under pressure, examining regional variables in car price trends reveals how OEMs are responding to unique regulatory, economic, and competitive conditions. 

Europe: Regulatory pressure drives competitive realignment

In Europe, pricing strategies are being reshaped by a convergence of regulatory deadlines, intensifying BEV competition, and the need for continuous product upgrades across both electric and combustion lineups.

BEV pricing — particularly in the B- and C-segments — is under pressure as OEMs race to meet CO₂ and ZEV compliance targets while expanding affordable electric offerings. In 2023, B-segment BEVs averaged nearly €40,000 — approximately €15,000 more than equivalent ICE models. By 2025 and following, that gap is expected to narrow with average BEV prices in the segment moving towards €30,000, reflecting both competitive realignment and early-stage cost improvements.

At the same time, combustion and hybrid models are not standing still. OEMs are investing in product substance across all powertrains to sustain market relevance and meet tightening emissions standards. Full hybrids are stabilizing in price, but combustion and plug-in hybrid models are projected to rise at a CAGR of 3.5% through the early 2030s due to regulatory-driven upgrades, new features, and technology enhancements.

The result: OEMs face a dual-pronged pricing challenge — closing the affordability gap in BEVs while defending margins on increasingly costly combustion models expected to remain in the portfolio well into the next decade.

China: Hypercompetition and price war fallout

Nowhere are car price trends shifting more rapidly than in China, where a 35% drop in average NEV prices (2020 – 2025 YTD) and 62 new brand entries since 2020 underscores the intensity of competition. Chinese OEMs now hold over 70% of the sub-200,000 RMB segment.

As local players solidify their dominance at the low end, many are also moving upmarket, targeting higher-margin segments with premium sub-brands and technology-forward products. BYD’s YangWang, Huawei’s collaborative ventures, and brands like Denza, Zeekr, Li Auto, and IM are capturing growing share in the 200,000–600,000 RMB range.

This segmentation signals a longer-term shift toward maturity — though S&P Global Mobility expects at least two more years of intense price pressure before consolidation resets the pricing baseline.

United States: Value repositioning and the vanishing entry-level segment

In the United States, car price trends are shaped more by inflation, tariffs, and strategic repositioning. From 2020 to 2025 YTD, average vehicle prices rose by 26%, driven by raw material and labor cost increases. An additional average weighted 4.6% MSRP uplift is forecasted for 2025.

This pricing shift has a clear market impact: the sub-$35,000 segment, which historically accounted for 40% of total industry volume, is gradually disappearing. OEMs are retreating from entry-level offerings and instead expanding portfolios in the $65,000+ segment, which has traditionally represented just 10% of the market.

Separately, many OEMs are recalibrating their EV strategies — delaying launches, cutting features, and prioritizing smaller, more affordable EVs aligned with consumer expectations and development costs.

This financial pressure is further compounded by external cost factors, most notably tariffs. While US OEMs have absorbed tariff impacts in the short term — at a cost of up to $200 million per OEM per month — this approach is unsustainable, adding to pressure for more durable, margin-positive pricing strategies.

The pricing behaviors across regions reveal a clear shift: traditional forecasting methods based on average growth rates and stable product cycles can no longer capture today’s complex realities.

To forecast car price trends effectively, models must evolve:

• Beyond CAGR: Static averages miss the episodic, sometimes abrupt nature of today’s pricing moves.
• Scenario Planning: Forecasts should use pricing bands tied to regulatory, cost, and competitor variables, not fixed segment projections for demand forecasting.
• Competitive Benchmarking: Peer comparisons must now include fast-moving disruptors like Tesla, BYD, and JV-backed Chinese brands.
• Lifecycle Agility: OEMs are adjusting prices mid-cycle, restructuring trims, and decontenting features to meet affordability goals. Forecasts must reflect this dynamic behavior and not just focus on stable MSRPs.

By incorporating these elements, forecasting moves from a backward-looking exercise to a forward-focused, strategic tool — enabling OEMs, suppliers, and investors to navigate pricing uncertainty with greater confidence.

As forecasting models evolve, so must the strategies of stakeholders across the value chain:

• OEMs must balance short-term regulatory compliance with long-term brand and margin goals, using pricing tactics without eroding positioning.
• Suppliers need to anticipate shifting vehicle mixes and plan around volume uncertainty as OEMs reconfigure portfolios.
• Investors should monitor margin signals and pricing power shifts to identify OEMs with durable strategies in volatile conditions.

By understanding these strategic imperatives, stakeholders can better align their decisions with the realities of car price trends where pricing is not a static endpoint but a dynamic, ongoing negotiation.