Table of Contents
Will Rising Gas Prices Increase Electric Vehicles Sales?
Listen to this article
- As Gas prices rise past $4 per gallon, automakers may continue to charge top money and sell electric vehicles.
The price of gasoline has risen past $4 a gallon this month, prompting analogies to 2008, when high gas costs stifled demand for gas-guzzling SUVs and pushed Detroit’s automakers into bankruptcy.
While Americans continue to like their large SUVs, and gas costs are only somewhat higher than they were in 2008, the parallels end there. Demand for trucks and SUVs plummeted fourteen years ago as buyers switched to more fuel-efficient cars or quit buying entirely. The financial system was imploding, savings were exploding, and automakers were creating far more automobiles than customers need.
The dynamics of today are vastly different. Demand for both new and secondhand cars is considerably exceeding supply because of the semiconductor scarcity. According to consulting company AlixPartners, dealers have around 1 million automobiles on their lots each month, compared to the customary 3 or 4 million. Even if a couple of million people are priced out of the market, Mark Wakefield, head of AlixPartners’ auto group in Detroit, believes there will be enough people to buy what the industry produces. “There were tremendous amounts of inventory during the 2008 boom, and buyers could pick-and-choose,” he explained. “Because of the inventory shortage, it will be muffled this time.”
“Car manufacturers are finding solace in this, as it means they can maintain high pricing to help absorb growing energy and raw-material costs,” In a roundtable with reporters last week, Carlos Tavares, the CEO of Jeep maker Stellantis, stated as much.
When I inquired about how inflation would affect Stellantis‘ earnings this year, he answered: “The pricing power will be there, since I don’t buy that semiconductor supply will be fixed in 2022.”
If you’re the CEO of a vehicle manufacturer, that’s the optimistic view, but there’s still a lot of uncertainty. More negative prospects are being highlighted by some Wall Street experts. Yes, the fuel-efficient sedan has given way to the small crossover, but neither is as profitable as pickup trucks and full-size SUVs, which compensate for lost volume. Automakers need those fat big-SUV earnings to support their electric car transitions.
For a long time, a greater new-car price will not be enough to balance rising input costs, placing additional pressure on automakers’ and suppliers’ operating profits/margins.
There are some bright spots. Because automakers now offer more electric vehicles than they did in 2008, EV adoption is expected to accelerate. However, According to a report released on Thursday, limited supplies mean that EVs aren’t yet ready for prime time. EVs are also expected to become more expensive, at least in the medium future, as the cost of metals like lithium and cobalt rises.
According to Simon Moores, founder and chief executive officer of Benchmark Mineral Intelligence, another consequence of Russia‘s sanctions is that Germany and other European nations who rely on Russian nickel for their EV battery needs would now have to look to China and Chinese-owned suppliers in Indonesia.
There’s a lot of new capacity coming online, so manufacturers should be able to get the nickel they need to keep building evs. However, such mines have a greater environmental impact, resulting in increased deforestation, pollution, and carbon emissions.