Increase COE Quota = Lower COE Price? We look at past trends to see where COE Price will likely end up.

By now, you would already know that the COE quota will have a jump due to a one-time adjustment to reduce supply volatility.

There will be an additional 6000 COE to be redistributed over the next few quarters starting from May 15. As a result, from May to July, the COE quota will increase from 9675 to 10431. This is an increase of 756 vehicles over 5 bidding cycles. This implies an increase of about 150 cars per bidding cycle.

While some are jumping for joy and anticipating a COE crash, the reality is far from the truth. While this may boost supply over the next year, it still needs to abate the demand, which far outstrips the supply.

Why COE Prices will not Crash

Demand is more than supply.

The supply for Cat A will increase by 24%, while Cat B will increase by 15%. At the last bidding, Cat A was overbid by 40% and Cat B 25%. This implies that demand would soak up the increase in COE.

Overall supply remains low compared to 5 years ago

Source: SGCharts

5 years ago, COE was hovering around 20-30K for Cat A when the supply of COE was as high as 1800+. Cat B COE was about 30-40K when supply was about 1300 per bid cycle.

Source: SGCharts

With the increase in supply for the next bid of COE for Cat A to 578 and Cat B to 453, it is still 3 times lesser COE compared to 2018. As such, don't expect prices to go to that level.

Supply remains low till 2025

Based on the charts, the next bumper COE cycle will only kick in around 2025. As you can see, the last spike in COE prices came in 2015 and 2005. This is a 10-year cycle projected to continue in 2025

Prices may continue to remain high even after 2025

The anticipated bumper COE in 2025 may not happen as this one-time adjustment is taken from future COE expiration. This means we are accepting future anticipated increases to use it today.

What will COE prices be?

Based purely on charts and assumed ceteris paribus, the anticipated price for COE is as follows.

Cat A - 70K

Cat B- 100K

However, as history has shown, once consumers accept a specific price point, it is always sticky on the downside. As such, a more realistic value would be as follow.

Cat A- 80K

Cat B - 110K

What do you think?

Disclaimer
This post is for informative purposes only.