For the first time in Israel’s history, new cars priced under 100,000 shekels have disappeared from the market. In 2015, several entry-level models were available for around 70,000-90,000 shekels, but due to inflation, taxation, and global supply chain disruptions, prices have surged. This marks a significant shift in the country's automotive landscape, pushing consumers to explore alternative mobility solutions and reconsider traditional car ownership.
Why Are Cars Becoming More Expensive?
Owning a car in Israel has always been a financial challenge, but recent developments have accelerated the rise in prices. Unlike countries with domestic manufacturing, such as the U.S. and Germany, Israel relies entirely on imports. This, coupled with an 83% import duty on most new vehicles, has significantly increased costs. Additionally, VAT at 17% and purchase tax further push up final prices.
Hybrid and electric vehicles, once a promising alternative, are also seeing reductions in tax benefits, making them less of a budget-friendly option. The Israeli government initially taxed EVs at 10%, but recent policy changes increased that to 35% as part of a gradual taxation policy shift. Global supply chain issues, semiconductor shortages, and inflation have further contributed to rising car prices, with average new car prices rising 15% from 2020 to 2023.
The Costs of Car Ownership
Buying a car is only the first step—owning one comes with ongoing expenses that add up quickly. Here’s a breakdown:
- Fuel Costs: Israeli fuel prices are among the highest in the world, currently averaging 7.50-8.00 shekels per liter (approximately $2.10 per liter), influenced by high excise taxes and fluctuating global oil prices.Insurance & Registration: The average cost of mandatory vehicle insurance in Israel ranges from 4,500 to 7,500 shekels annually, depending on the driver’s profile and vehicle type. Registration fees for cars with larger engines can exceed 3,000 shekels per year.Maintenance & Repairs: The cost of routine servicing is significantly higher compared to Europe or the U.S. due to limited competition and monopolized spare parts. A simple oil change can cost between 600-1,200 shekels, while more extensive repairs like replacing brake pads can exceed 2,500 shekels.
What Are the Alternatives?
With fewer budget-friendly options, Israeli consumers are adapting. The used car market is experiencing higher demand, with prices rising by 10-20% over the past two years as fewer new cars enter the market. Leasing, though more expensive than before, remains a popular alternative, with monthly rates now averaging 2,000-3,500 shekels for standard vehicles.
Meanwhile, public transportation improvements, including the Tel Aviv light rail and intercity rail expansions, are slowly providing more reliable options for daily commuters. Over 400,000 passengers are expected to use the Tel Aviv light rail daily once fully operational.
Car-sharing and electric scooters are also on the rise, with companies like GoTo and Bird expanding their fleets. Electric scooter usage in Tel Aviv has surged by 35% since 2021, making them a viable last-mile transport solution.
Comparing Israel to Other Markets
In the U.S., an entry-level sedan can cost around $20,000 (74,000 shekels), while in Israel, the same vehicle is priced nearly double due to taxation and import costs. In Germany, where domestic production and government incentives are available, car buyers can benefit from rebates of up to €6,000 on electric vehicles, a luxury not afforded to Israeli consumers.
What Lies Ahead?
While advocacy groups push for tax reforms and incentives for electric vehicles, significant policy changes may take time. The Israeli government aims to have 30% of all new vehicles be electric by 2030, but with increasing taxation on EVs, achieving this goal remains uncertain.
As the market continues to evolve, adapting to these changes may become essential. Whether through public transit, car-sharing, or emerging mobility technologies, Israeli consumers are finding ways to navigate the challenges of rising car prices.
Final Thoughts: A New Era for Transportation in Israel
While affordable new cars may be harder to find, opportunities for innovation and adaptation in transportation are growing. Whether through expanding public transit or embracing alternative mobility solutions, the road ahead may be changing, but it’s far from closed.
