-By LeN Business Analyst
(Lanka-e-News -03.Nov.2025, 11.00 PM)
Sri Lanka’s vehicle market—long known for its volatility, currency-linked chaos, and consumer impatience—is finally slamming on the brakes. After nearly two years of import restrictions being partially lifted, importers are facing a crisis they didn’t see coming: an oversupply of cars that nobody wants to buy.
Across Colombo, vehicle yards once buzzing with eager buyers have turned eerily quiet. Rows of brand-new electric vehicles (EVs) sit under the tropical sun, gathering more dust than mileage. Dealers whisper that prices will fall by 30 to 40 percent before December. Consumers, meanwhile, have caught on—holding their money tight, waiting for the inevitable crash.
The irony? The very importers who once lobbied furiously for liberalization now find themselves drowning in their own stock, trapped between falling demand, customs penalties, and unpaid bank loans.
When the government reopened vehicle imports in early 2024, it was meant to signal recovery and restore consumer confidence. Banks quickly joined the bandwagon—especially the National Trust Bank which extended generous credit lines to importers of electric and hybrid vehicles.
The logic was simple: post-pandemic, post-crisis Sri Lanka was expected to join the global EV revolution. Importers rushed to secure dealership rights for Chinese and Japanese brands, assuming high urban demand and strong resale value. But the optimism proved short-lived.
By mid-2025, macroeconomic realities caught up. Household incomes stagnated, inflation eroded disposable earnings, and energy prices remained high. The average Sri Lankan household—still recovering from years of economic contraction—was in no mood to buy a new car, electric or otherwise.
In economic terms, Sri Lanka is experiencing a classic demand-side recession in the auto sector. Showroom data from September and October 2025 show a 47% drop in monthly sales compared to the same period in 2024.
Luxury segments—once driven by returning expatriates and business owners—collapsed first. But even mid-range Japanese reconditioned cars, the bread and butter of the market, are seeing price cuts of 25–30%.
Dealers admit that customer footfall has “vanished.” One importer in Kelaniya confessed that despite slashing prices by 2 million rupees per unit, not a single sale was closed in October.
“People don’t even come for test drives anymore,” he said. “They just say, ‘We’ll wait until December.’”
While dealers face unsold stock, banks face something worse: non-performing loans (NPLs).
The NTB Bank, once celebrated for its “green ( John Keels ) vehicle financing” initiative, is now trapped in an uncomfortable situation. Many importers who took out large facilities in late 2024 are unable to service their debt. Vehicles imported under Letters of Credit are now parked unsold in warehouses, depreciating in both value and market interest.
Bank officials privately admit that the problem has ballooned. “We are technically sitting on metal mountains,” one senior banker said, referring to the hundreds of EVs pledged as collateral. “The resale market has dried up, and repossession is useless—no one wants to buy them.”
The Central Bank, too, is worried. Internal memos seen by this newspaper suggest that auto loans are becoming a systemic risk—a small but growing pocket of instability within the fragile financial system.
Compounding the crisis are Sri Lanka Customs penalties.
Under import regulations, vehicles brought into the country must be cleared, registered, and sold within 90 days of arrival. But as the market froze, importers found themselves unable to meet this requirement. The penalty for non-compliance? Substantial storage fees and surcharges—sometimes up to 10% of the declared value per month.
As a result, importers are now paying millions in demurrage and penalty fees while their unsold cars sit idle. “We’re bleeding money every day,” said one authorized agent of a Japanese brand. “Even the Customs Department doesn’t know what to do. They can’t re-export the cars because international demand has collapsed too.”
Normally, struggling importers could look abroad to offload excess inventory. But not this time.
Globally, vehicle demand is cooling. The once-booming EV markets in Europe and Southeast Asia are facing oversupply, driven by production gluts in China and slowing consumer uptake due to high interest rates. Shipping unsold vehicles back is not only logistically expensive but economically suicidal—export resale values have plunged 20–25% globally.
Thus, Sri Lanka’s importers find themselves locked in. They can neither sell locally nor export profitably. Their only remaining option? Slash prices.
By all credible estimates, vehicle prices in Sri Lanka are expected to drop by 30 to 40 percent between November 2025 and February 2026.
That means a compact EV currently priced at Rs. 9 million could fall to around Rs. 6 million or less. Hybrids and reconditioned Japanese cars may see even steeper cuts.
For consumers, this is good news—a long-overdue market correction. But for those who’ve already placed deposits or bought recently, the outlook is grim.
Industry analysts warn that anyone who has paid an advance should reconsider. “Cancel, demand a refund, and wait until January,” advises one financial consultant. “The real deals are coming then.”
This crisis is not just about falling demand—it’s about poor structural planning.
Sri Lanka’s auto sector has long operated in a reactive, speculative manner. Importers tend to chase short-term government policy rather than long-term consumer trends. When restrictions are lifted, they rush to import; when restrictions tighten, they lobby for exemptions.
This cyclical behaviour—what economists call policy-driven volatility—has left the market vulnerable. Importers borrowed heavily without studying real market elasticity. Banks financed them without adequate risk modelling. And consumers, fatigued by economic uncertainty, simply walked away.
Electric vehicles were supposed to be the saviour of Sri Lanka’s import industry—a green, tech-savvy alternative aligned with global sustainability goals.
But the reality has been sobering. Without adequate charging infrastructure, rising electricity tariffs, and unstable policy incentives, Sri Lanka’s EV dream turned into a marketing gimmick.
Customers soon realized that charging an EV at home could cost as much as fuelling a small petrol car. Moreover, spare parts and technical expertise remain limited. “The EV hype is collapsing,” said a senior automotive engineer. “People thought they were buying Tesla-style performance. What they got was Chinese uncertainty.”
As vehicle importers default, banks are being forced to restructure loans or absorb losses. NTB Bank is not alone—several mid-tier financial institutions are now quietly renegotiating facilities.
The Central Bank’s October bulletin hinted at “growing credit stress in trade-linked sectors”, though it avoided naming specifics. Analysts fear that if the situation worsens, smaller banks may tighten credit to other industries, triggering a broader slowdown.
“The auto crisis could be the canary in the coal mine,” said a senior economist. “It’s exposing weaknesses in how banks assess sectoral risk.”
For ordinary buyers, however, this market correction is a rare opportunity.
Those planning to buy vehicles should wait. Prices are falling, dealers are desperate, and banks are offering clearance sales on repossessed stock. A 30% reduction is already visible in hybrid and compact car categories; analysts predict another 10% cut by mid-2026.
Moreover, the depreciation of the yen and the global EV surplus mean import costs are falling worldwide. The Sri Lankan market, after years of artificial inflation, is finally aligning with international prices.
If there’s a moral to this story, it’s this: in a market that has lived by speculation, the patient will now be rewarded.
The current crisis also offers lessons for policymakers. The government must:
1. Implement stable import policies—avoid sudden bans or liberalizations that distort pricing.
2. Reform customs penalties to reflect realistic sales cycles.
3. Encourage used-vehicle exports under favourable terms to ease stock pressures.
4. Coordinate with the Central Bank to prevent further loan defaults and financial contagion.
Without such interventions, the market will continue swinging between scarcity and surplus—hurting both consumers and businesses alike.
By December, Sri Lanka’s vehicle market will undergo one of its sharpest corrections in recent history. Importers will be forced to liquidate at losses; banks will absorb hits; consumers will celebrate.
But in the long run, this shakeout could prove healthy. The speculative dealers will exit. The better-capitalized, disciplined importers will survive. And consumers will finally see rational pricing return to an industry long dominated by cartel-like pricing behaviour.
If 2024 was the year of irrational exuberance, 2026 will be the year of sober reckoning.
The message for the Sri Lankan public is simple: wait.
Do not buy vehicles now. Do not pay deposits. And if you already have—ask for your refund. By early 2026, the same vehicle could cost 30–40% less.
For the first time in a decade, the market is on the buyer’s side. And in this rare window of opportunity, patience isn’t just a virtue—it’s an investment.
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by (2025-11-03 19:44:07)
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