What's Happening?
Iceland's tourism sector is experiencing a robust start to the year, driven by a significant increase in car rentals. According to the Icelandic Automobile Manufacturers Association, 1,385 new passenger cars were registered in January, more than doubling
the figures from the same month in 2025. This surge is largely attributed to rental car companies, which registered 963 vehicles, a sixfold increase from the previous year. The rise in registrations is believed to be influenced by a spike in imports before the New Year, prompted by an increase in excise duties. Hybrid and plug-in hybrid vehicles dominated the new registrations, accounting for 45.5% and 29.7% respectively, reflecting a shift influenced by recent tax changes. Fully electric vehicles were particularly popular among private buyers and other companies.
Why It's Important?
The increase in car rentals is a positive indicator for Iceland's tourism industry, suggesting a potential rebound after previous downturns. The preference for hybrid and electric vehicles aligns with global trends towards sustainable travel, which could enhance Iceland's appeal as an eco-friendly destination. This development may also stimulate the local economy by boosting related sectors such as hospitality and retail. However, the reliance on rental companies for this growth highlights potential vulnerabilities, as fluctuations in tourism demand could impact future vehicle registrations. The shift towards hybrids and electric vehicles could also influence Iceland's environmental policies and infrastructure development, promoting further investment in green technologies.
What's Next?
As the tourism season progresses, stakeholders will likely monitor the sustainability of this growth in car rentals. The government and industry players may consider strategies to maintain momentum, such as promoting Iceland as a year-round destination and enhancing infrastructure to support electric vehicles. Additionally, the impact of excise duty changes on vehicle imports and registrations will be closely watched, potentially influencing future policy decisions. The tourism sector's performance will also be a key indicator of economic recovery, with implications for employment and investment in Iceland.
