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Published on May 31st, 2020 | by Guest Contributor

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Will Low Gas Prices Hurt Tesla?

May 31st, 2020 by  


Originally published on EV Annex.
By Charles Morris

Amid the financial fallout from the COVID-19 pandemic, most of us have hardly had time to consider the effects of another economic H-bomb that went off around the same time: the collapse of oil prices. Tough economic times seem likely to dampen demand for electric vehicles (EVs), which remain considerably more expensive than comparable legacy cars. Will low gas prices be the last nail.

Charging Stop

Charging stop at a Tesla Supercharger at the Culver City Service Station, by Kyle Field/CleanTechnica

That’s the question ABC News asked in a recent article, and a couple of experts from the traditional auto world leaned toward a yes.

“If someone was trying to engineer the downfall of the electric car movement, they did a good job,” Karl Brauer, Executive Publisher of Kelley Blue Book and Autotrader, told ABC. “Every single American is thinking about finances and what risks they are willing to take, and that’s a terribly negative impact for EV sales.”

According to data from Cox Automotive, the average price of a pure EV in 2019 was $41,959, compared to $38,671 for a legacy SUV, or $29,795 for a sedan. There’s no question that EVs are more expensive to buy up front, but what’s the specific impact of gas prices? Are EV buyers counting on savings on fuel costs to make up the difference?

Mark Wakefield, an auto industry analyst with consulting firm AlixPartners, thinks so. “Gasoline prices are mainly the reason people buy EVs,” he told ABC News.

With all due respect, EV industry insiders have always considered this to be a myth. Back in the 1990s, Tesla co-founder Martin Eberhard noticed stylish performance cars parked next to what he called “dork-mobiles” such as the Prius in the wealthy driveways of Palo Alto, and realized that many shared his conflicting loves of speed and the environment. At the time, gas was selling close to inflation-adjusted all-time lows, so it was clear that something else was going on.

Longtime EV journalist John Voelcker told ABC that, historically, hybrid sales have proven responsive to gas prices, but plug-in vehicle sales have not. EV demand has heretofore been low because there aren’t enough options in the form factors Americans want — SUVs and pickups. Voelcker believes EV sales will suffer along with the overall auto market, but “are not going to be hurt any more than vehicles that have combustion engines.”

Experts from different segments of the industry may see things differently, but simple math belies the “people buy EVs to save gas” argument. There’s only one automaker that has sold any really substantial numbers of EVs to date, and for better or for worse, its products aren’t for price-sensitive consumers. (Tesla sold 187,000 vehicles in the US in 2019, compared to second-place Chevrolet’s 16,418.) Is it really plausible that someone who can afford to pay $48,690 to $70,990 for a Model Y is going to reconsider their purchase based on whether gas costs $2.50 or $1.50 a gallon?

As COVID-19 restrictions are eased over the coming weeks, it’s likely gas prices will rise (YouTube: CBS Los Angeles)

There doesn’t seem to be much support on Wall Street for the “cheap gas kills EVs” thesis — TSLA shares are currently trading near their pre-COVID highs, while the valuations of legacy automakers are struggling to recover.

What do oil industry experts think? Are they dancing around, singing “Ding dong, the wicked EV is dead?” Not at OilPrice.com. The title of a recent article, “The Oil Price Crash Won’t Stop The Tesla Boom,” tells the story.

Alex Kimani writes that Tesla is now facing “a triple whammy” of low gas prices, weaker federal fuel-economy standards, and a drop in demand due to the health crisis. However, he notes that cheap gas has not done much to hurt Tesla’s value proposition. “It’s still considerably cheaper to operate a Tesla than your average gas-powered vehicle,” he writes.

Citing figures from AAA and SolarReviews, he calculates that the average cost per mile of driving a Tesla is around 40 percent that of an ICE vehicle, even with today’s low gas prices. “Gas prices would have to fall below $10 per barrel … before gas-powered vehicles [could] start challenging EVs’ low operating costs,” writes Kimani.

Furthermore, this is all beside the point. As Eberhard, Voelcker, Wall Street, and common sense are all trying to tell us, people don’t buy EVs — at least not Teslas — to save money. Oilman Kimani gets it. “It’s quite remarkable that EVs have continued to gain market shares at a torrid pace over the past decade despite gas prices generally remaining low and the US federal gas tax remaining unchanged since the 1990s,” he writes.

A commenter on Kimani’s article may have put it even more eloquently: “Tesla owners have lower operating costs, but that’s not what they talk about. They talk about performance, the kick in the pants. Electric vehicle sales will grow regardless of oil prices.”

Featured image: Tesla Supercharger at Buelton, California, by Kyle Field/CleanTechnica

 
 


 


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