Iceland's EV surge: why most new cars are now electric
Iceland keeps breaking its own EV records. Here's what is driving adoption and what it means for buyers in 2026.
The headline number
In Q3 2026, 78% of all new passenger cars registered in Iceland were either fully electric or plug-in hybrid. That's up from 64% a year earlier and 41% in 2022. The internal combustion engine, in its pure form, now accounts for barely one in five new registrations — and most of those are commercial vans or 4x4s sold to rental fleets.
Why this is happening so fast in Iceland specifically
Three forces are pushing harder here than almost anywhere else in Europe:
- Electricity is cheap and clean. At roughly 18–22 ISK/kWh from Orka náttúrunnar, home charging is dramatically cheaper than even discounted petrol. Combined with Iceland's near-100% renewable grid, the carbon argument is unambiguous.
- Tax incentives still bite. The VAT exemption on EVs under 10M ISK was extended through end-of-2027, saving buyers up to 1.5M ISK on a typical family EV. PHEVs get a partial reduction.
- Cold-weather range anxiety is fading. New thermal management systems (heat pumps, battery preconditioning) cut winter range loss from ~35% to ~15% on cars built after 2024.
What this means if you're buying used
The used market is now feeling the shift. Three-year-old diesel SUVs are depreciating noticeably faster than they did pre-2024. A 2023 Skoda Kodiaq diesel that would have held 70% of its value through year three is now closer to 60%. Conversely, used EVs with proven battery health (>90% State of Health on a recent test) are commanding premiums over their book value.
If you're cross-shopping a used diesel SUV against a used EV of the same age, run the five-year total cost of ownership including expected residual. The EV usually wins by 800k–1.5M ISK, even before fuel savings.
What this means if you're selling
- Selling a 2020–2023 diesel? Don't wait. Each quarter you hold, you lose roughly 2–3% of value beyond normal depreciation.
- Selling a used EV? Get a battery health certificate before you list. It is the single biggest factor buyers ask about, and a strong SoH number lets you ask 200–400k ISK more.
- Selling a hybrid (HEV, not PHEV)? The market is currently kind to hybrids — they're seen as a low-risk middle ground. Take advantage while it lasts.
The infrastructure catch
The grid is fine. The chargers are catching up but unevenly. Reykjavík and the Suðurnes region are well-covered; the Westfjords and parts of the East Fjords still have meaningful gaps. If you live outside the southwestern corner and only own one car, a PHEV (or a long-range EV with 80kWh+) remains the safer pick over a 50kWh city EV until at least 2027.
The outlook for 2027
Expect new-car EV share to break 85% by Q4 2027 as the last big mainstream manufacturers (Toyota, Mazda) bring competitive BEV product to market. The shape of the used market will follow with a 12–18 month lag. By 2028 we expect the typical used-car buyer to be defaulting to electric and asking "why would I get diesel?" rather than the other way around.