The war in the Middle East has resulted in widespread disruption in the energy market as the Iranian government announced the closure of the Strait of Hormuz, a vital trade route responsible for over a fifth of the world’s crude oil supply.
Fuel Prices Soar
The disruptions have also led to challenges at the pump, with fuel prices soaring at the pump across the world. Consumers across the globe are shifting towards EVs, with Australia reporting a 161% surge in EV car loans.
However, per data from Cox Automotive, U.S. EV sales are likely to fall by 28% in March, a month into the war, as the average national price for a gallon of gasoline exceeded the $4 mark.
This begs the question: Are EV sales going to rise in the U.S. as the conflict continues? Daniel Greene, who is the Senior Director of Consumer Protection and Product Safety Policy at the National Consumers League, thinks that demand will shift towards more fuel-efficient vehicles.
Shift In Demand
“The cost of fuel is the most significant contributor to the overall cost of vehicle ownership,” Greene said in his conversation with Benzinga. “As fuel costs generally rise, there is a shift to more fuel-efficient vehicles,” he said, adding that he anticipates a positive shift in demand for Hybrids and EVs.
U.S. used electric vehicle sales jumped 12%, he said. Greene called the shift “pretty remarkable,” considering the loss of the EV incentives, but acknowledged that new EVs weren’t selling.
When asked for possible reasons behind the phenomenon, he opined that customers perhaps considered the fuel price surge as a “short-term blip” when making their purchases. “I would be very curious to see how the market transitions in April and May and particularly whether gasoline prices stay where they are or not,” he said.
Cruel Irony
“There is a cruel irony that in the midst of these unprecedented spikes in gasoline prices and a deepening affordability crisis, the Trump administration’s response has been to eliminate tax credits for clean vehicles and roll back fuel economy standards,” Greene said, lamenting the administration’s decision to end EV credits and relax CAFE norms.
These decisions by the Trump administration could hamper energy security, increase costs and “decimate household budgets,” he said. Greene also shared that the advent of EVs was inevitable. “EVs are coming whether we like them or not. They’re coming. That is the future,” he said, stressing the need for a domestic manufacturing capability for EVs, the lack of which has given rise to China dominating the sector.
Could ICE Vehicle Ramp Backfire?
A recent Reuters report showcased that automakers like Ford Motor Co. (NYSE:F) and General Motors Co. (NYSE:GM) had increased production for gasoline trucks despite rising fuel costs.
Greene thinks that such a move could backfire, adding that he “wouldn’t be surprised to see the industry be compelled to shift production yet again, if gasoline prices do remain at current levels.” Greene also acknowledged and conceded that brands could still try to push customers towards larger vehicles, citing larger profit margins.
However, there could be a shift towards more hybrid vehicles being produced if fuel prices remain high. Greene also thinks that the recent increases could result in better demand for manufacturers like Tesla Inc. (NASDAQ:TSLA), Rivian Automotive Inc. (NASDAQ:RIVN) and Lucid Group Inc. (NASDAQ:LCID).
“EVs will become the most cost-effective purchasing option at a customer’s disposal,” as buyers start to factor in the costs of “prolonged increases in gasoline prices,” he said.
Tesla reported a disappointing delivery figure in Q1, missing market expectations as it delivered over 358k vehicles. However, the figure also represented the largest number of unsold vehicles sitting in the lot for the Elon Musk-led EV giant.
Is There A Way Out Of The Fuel Price Crisis?
As the conversation shifted towards the crisis in the Middle East, Greene shared that while the U.S. can’t really do much from the supply side of things amid the closure of the Strait of Hormuz, “from a demand side, we absolutely can respond by trying to improve our energy efficiency and stop our reliance on oil.”
He also said that the U.S. should be “very mindful of what sort of foreign entanglements and interventions,” it partakes in, while stressing the need to shift away from oil and towards more self-sufficient energy solutions.
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