High gas prices boost buyer interest in electric vehicles amid Russian invasion of Ukraine
The phones were ringing Wednesday morning at Ontario Hyundai in California’s Inland Empire, and the callers had one thing in mind – an electric vehicle.
Before 10 a.m., the dealership received 20 inquiries about Hyundai’s new electric crossover, the Ioniq 5. The dealership gets a few dozen calls a day about EVs but never 20 in the first hour, general manager Sam Labib said.
Labib had one explanation – surging gas prices, which hit a national average record, according to AAA, of $4.32 per gallon of regular last week. Before the surge, the record was $4.11 in July 2008. It was even higher in California on Thursday – $5.69 per gallon. Those prices are not adjusted for inflation.
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“Of course, the gas prices are creating that panic and accelerating that EV market,” Labib said, noting that interest in his dealership’s green vehicle offerings has been on the rise for some time, even if last week stands out.
It's something that has been seen nationally as well, but the Russian invasion of Ukraine and its impact on gas prices has supercharged interest in EVs, even if that doesn't lead directly to sales. Edmunds, which has an online research site for car shoppers, said its "on-site shopper consideration of green vehicle (hybrid, plug-in hybrid and battery electric)" jumped 39% in the past month.
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Green vehicles hard to come by
EVs aren’t expected to suddenly supplant gas-powered vehicles anytime soon even though they continue to grow as a share of the market. Green vehicles can be hard to come by, according to analysts, in part because of cost and supply chain challenges. Some brands have waiting lists.
“Unfortunately, making an EV purchase is not particularly easy to do right now amid inventory shortages, and price-sensitive consumers most affected by gas price hikes will likely find that making the switch is also a bit out of financial reach due to the premiums that these vehicles command,” according to Jessica Caldwell, Edmunds’ executive director of insights.
The average transaction price for a new EV hit $60,054 in February, which was $1,820 higher than the sticker price, according to Edmunds. The average transaction price for new vehicles, including EVs, was $45,596 in February.
Both price points put new vehicles out of range for many consumers.
Carla Bailo, president and CEO of the Center for Automotive Research in Ann Arbor, Michigan, said that’s one reason gas price spikes haven’t made a big difference in vehicle purchase decisions. Many consumers in the market for a new vehicle continue to buy large, gas-powered trucks and SUVs.
“The people who are buying, they are not your average consumer. They have a lot of disposable income, so (even) if fuel prices go to $6, $7 a gallon they’re not going to care,” Bailo said. “It’s not going to change their buying decision because they’re not living paycheck to paycheck, so to speak, but those folks that are, yeah, if and when they can afford to buy a vehicle, they’ll be looking at whatever’s the most economical.”
If prices get to $5 per gallon and stay there for a while, things will change, she said, starting with behavior, such as people choosing to combine trips, drive less or carpool.
“A dollar a gallon more is still less expensive than buying a new car,” said Erik Gordon, a professor at the University of Michigan Ross School of Business. “I don’t think people are going to be ditching their big cars and switching, but people who are in the market to buy a car, I think, are going to think twice about mileage.”
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Sticker shock, then and now
Gordon, 62, recalled his childhood in suburban New York in the 1970s when shocks at the pump were caused by world events, such as the OPEC oil embargo. Gordon said he would go with his parents to the gas station and wait to get a rationed amount of gas on so-called odd/even days, when the last digit on the license plate determined which days people were able to get fuel.
He remembered lines for gas and stations with sandwich boards reading, “No Gas.”
The family car was a big station wagon with a luggage rack.
“We didn’t go out and sell it, but we did pay a lot more attention to gas mileage,” he said.
Gordon said he doesn’t expect a repeat of gas lines and odd/even days, but higher prices might be around for a while.
Unfortunately, the time frame is unclear, and the longer prices stay high, the greater the likelihood that consumers will make their own changes.
Gordon noted the suddenness of the price increase.
Gordon said he lives in Ann Arbor and doesn’t drive a lot, but when he got gas last week, it was 43 cents per gallon higher than his previous stop at the pump.
This is an “in-your-face increase,” so it's psychologically very different, he said.
That was something Bailo said her family experienced on a weekend. The family went to Salt Lake City for a skiing trip, and her husband drove. The return trip to Michigan was $100 more than the trip west.
Those prices stand out, but past shocks hit people harder.
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Omair Sharif, founder and president of Inflation Insights in Pasadena, California, noted that the all-time high inflation-adjusted price of $5.27 per gallon in July 2008 would be about 20.5% above the weighted national average price of $4.37 for a gallon of gasoline as of last Wednesday. The weighted average includes regular, mid-grade and premium gasoline.
People overall don’t dedicate as much of their budget to gas as they did in the early 1980s.
Gasoline spending as a total share of spending spiked at 5.22% in April 1980.
As of January 2022, spending on gasoline was 2.3% of all spending.
Given the prices after the spike, that share should jump to about 2.9% this month, Sharif said, and that’s in line with a long-run average of about 3%.
“Even if gasoline’s wallet share isn’t as high as it used to be, I don’t know that we want to minimize the sticker shock to consumers,” he said.
“It’s also true that this is the second-largest shock to gasoline’s wallet share in such a short time in 63 years of data,” he said. “And I’m not sure that should be as easily dismissed.”
Sharif said he did not have a price point for gas where people would shift from traditional internal combustion engine cars and trucks to EVs.
“I’m not sure such a price point exists,” he said. “Right now, it’d be hard to switch to an EV if you wanted to because they’re just not as readily available due to supply chain issues. ... Most people would have to get on a waitlist.”
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Sharif said there is good demand for EVs in general, even beyond wanting to save on gas costs.
“I’m sure higher prices will push some people into EVs, but I don’t know if that starts at $4 a gallon, $5 a gallon or some other price point,” he said.
Compact cars, anyone?
Warren Mayor James Fouts said he's worried the price increases in gas and other products will have wide-ranging effects, including on big employers in Warren such as General Motors and Chrysler-parent Stellantis.
"Because when inflation goes up, people get tight on their money, and people are more likely to decide to hold on to whatever they've got, and that means they won't be buying a new car," he said.
Fouts said he encourages everyone, especially anyone who lives in Michigan or is dependent on the auto industry, to buy American.
In the 1970s, concerns about fuel economy led Japanese automakers to establish themselves in the U.S. market. Smaller offerings that delivered better gas mileage and increasing quality led to permanent changes in the auto industry as many Americans looked beyond the larger rides Detroit offered.
In recent years, trucks and SUVs, rather than sedans, have captured an increasing share of the new vehicle market. Ford, General Motors and Stellantis, when it was Fiat Chrysler Automobiles, led the shift away from passenger cars, citing consumer demand and the higher margins those larger vehicles deliver in phasing out many of their passenger car models.
U.S. automakers have always disdained small cars, Gordon said, but the reason they moved away from sedans was logical from a pure business standpoint: They simply weren’t as profitable.
Toyota and Honda have done more to maintain their car offerings and may see growth at the expense of the Detroit Three, Gordon said.
It’s not clear that Detroit is headed for the same kind of market share loss it faced in the 1970s, in part because of changes that made engines more efficient.
The shift toward electrification and the billions of dollars in investment that come from that mean automakers have been preparing for a new reality. Hybrids, such as the Jeep Wrangler 4xe and Ford Escape Hybrid, offer alternatives for consumers concerned about fuel economy, aside from pure EVs.
Return of the 4-door sedan?
In the short term, some automakers acknowledge the possibility that sedans might become more attractive again.
“It’s clear that (the high fuel prices are) bringing back more potential to the sedan offer because of the fact that the aerodynamics are more supportive of the low fuel consumption,” Carlos Tavares, CEO of Stellantis, said this month. “This has not been the expectation and the demand from our customers so far, but the fact that the cost of transportation through the price of oil is going to increase, it may bring more consumers to this kind of product.”
Contributing: Christina Hall, Mark Phelan and Susan Tompor
Contact Eric D. Lawrence: elawrence@freepress.com. Follow him on Twitter: @_ericdlawrence.