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Will Electric Vehicles Feel the Pinch from $2.30 Gasoline?

Having posted two environmental pluses from low oil prices, we look at a negative—the effect on sales of EVs would seem to be one of the more evident downsides. How will alternative-fueled vehicles compete in the marketplace when gas costs $2.30?
December 27, 2014, 9am PST | Irvin Dawid
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David R. Bakerenergy and clean tech reporter for The San Francisco Chronicle, asks now that "gasoline prices have plunged to their lowest level since the Great Recession, averaging $2.50 nationwide for a gallon of regular...(will) one of the most powerful arguments for alternative-fuel cars will be wiped out?"

First, a brief note to explain the 20-cents difference between the low gas prices. I checked the AAA Daily Fuel Gauge Report: As of Dec. 26, the U.S. average gas price is $2.324 per gallon, almost a buck less than this time last year. However, according to the Energy Information Administration's "Weekly Retail Gasoline and Diesel Prices," the U.S. average for all grades as of Dec. 22 was in fact $2.50.

More relevant to new car buyers is that the Energy Department predicts gas prices will remain below $3 through 2015.

Second, as Baker makes clear, the effect of low gas prices on electric vehicle (EV) purchases depends on the model. Take Tesla for example: their "Model S sedan set a record of 7,785 in this year’s third quarter," writes Baker. As for the the new addition to the iconic electric car manufacturer's lineup, "many analysts don’t expect low gas prices to trip up Tesla’s Model X rollout, now scheduled for the third quarter of 2015," adds Baker. In fact, "the entire first year’s production [for Model X] run has been reserved."

As one analyst put it for these shoppers, “If you have people buying a $90,000 car, more or less, they’re not really penciling out the gas savings. People are buying these because of the performance."

OK, but how will gas prices affect potential EV customers who don't have $80,000 to spend (before tax rebates and credits)?

Baker doesn't speculate about Nissan Leaf sales, though he does writes that "the world’s most popular electric (car) just scored its 22nd straight month of year-over-year growth, with 2,687 cars sold in the United States in November. The Chevy Volt, an advanced plug-in hybrid, isn’t selling as well as it did last year, but that was true in the spring, before gasoline prices started to tumble."

Instead, Baker turns his attention to Toyota's new fuel cell vehicle, the Mirai, that began sales "in Japan this month for about $58,000. The company plans to begin sales in California next year and will cover all fueling costs for three years," he writes.

“We’re going to sell this the same way we would if prices were higher,” said Craig Scott, manager of advanced vehicle technologies for Toyota Motor Sales USA. “The sales approach won’t be any different. It’ll be all about consumers who want to buy technology that has zero emissions.”

With sales limited to about 50 a month, it's easy to see why gas prices won't have much if any effect.

However, Kyle Stock, associate editor for Businessweek, writes that low gas prices present a "major problem for anyone trying to sell hybrid and electric vehicles. Electric engines and their massive batteries have never been cheap. A big part of the sales equation—savings at the fuel pump—has virtually vanished."

Surprisingly, the Leaf seems to hold up its end. Hybrid vehicle sales, on the other hand, seem to suffer disproportionately, according to his findings, which is consistent with an earlier post.

The Leaf makes a compelling argument, even if it can go only 84 miles between charges. The Prius math, on the other hand, is particularly unappealing while gas is cheap. And that Dodge Challenger Hellcat, with its 707 horses burning 16 miles-per-gallon? That muscle car is looking more prudent than ever.

While plummeting gas prices can do no good for sellers of EVs and at best, will have little effect on them, there is a silver lining for buyers of alternative powered or fueled vehicles. Brad Tuttle of Time writes that the low gas prices have had the effect of reducing prices for hybrid and electric vehicles.

Hat tip to MTC Headlines

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Published on Thursday, December 25, 2014 in San Francisco Chronicle
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