Rising US gasoline costs make EV ownership even more favorable, say advocates

US gasoline prices surging above $4.00/gal on average are making EVs—already coming off a record market share of 6% in the fourth quarter of 2021—even more financially attractive to drive, say vehicle trade groups.

Charging an EV costs one-fifth to one-half of refueling a comparable gasoline internal combustion engine (ICE), on a per-mile basis, in the US, said the Zero Emission Transportation Association (ZETA) in a report released in early March.

Comparing models of popular SUVs, pickups, and sedans, ZETA said that the EVs are significantly less costly to drive in each category. The prices below are based on a retail gasoline price of $4.32/gal (as of 10 March) and a $0.14/KWh for power (December 2021).

Source: Zero Emission Transportation Association

"This month's Consumer Price Index shows once again that gas prices are surging, which has been exacerbated by Putin's invasion of Ukraine. American families are losing money at the pump to a commodity that is increasingly unpredictable and unaffordable in an already-expensive pandemic year," said Joe Britton, executive director of ZETA. "Our analysis shows that American consumers don't have to choose between driving their car or saving money. Electric vehicles are affordable now."

However, ICE engines still offer substantial advantages on driving range.

Source: Zero Emission Transportation Association

How will consumers react?

Volatile gasoline prices do make EVs more attractive to consumers, commented Mike Fiske, research and analysis director at S&P Global Mobility. "The larger question is whether consumers view this spike in cost as being temporary or not," he said in an email to Net-Zero Business Daily by S&P Global Commodity Insights.

"If they believe fuel costs won't be falling again, that may play a larger role. In additional to EVs, full hybrids and plug-in hybrids will also get increased interest during this time," Fiske said.

While high gasoline prices might draw consumers' attention, car dealers still have an educational mission ahead of them, as they talk to consumers about the full cost of vehicle ownership, Fiske added. "The differences in wear items [breaks, tires, oil, etc.] may not be as immediately salient when comparing an ICE to an EV," he said. "This is one of the reasons that dealership training is going to be an important factor moving forward as sales penetration attempts to move into the mainstream. Dealers will need the ability to articulate benefits and overcome buyers' concerns."

Even prior to the latest gasoline price surge, apparently that message had been getting through to American car buyers.

The Alliance for Automotive Innovation's (AAI) latest quarterly report, released on 21 March, pegged EV sales at 187,490 vehicles in the fourth quarter of 2021, up 11% from the quarter-ago level and up 69% from the year-ago level. This came at a time when US vehicle sales overall declined by 9% quarterly, said AAI.

"EVs represented 6% of overall light-duty vehicle sales in Q4, the highest for any quarter to date," said AAI President and CEO John Bozzella in a press statement. "The report highlights the continued progress in consumer acceptance of EVs."

Leading the way for 2021 sales were California with 303,151 new vehicle registrations, Florida (81,707), Texas (72,736), and New York (69,434). On a percentage basis of new car registrations, California again topped the list at 13%, followed by the District of Columbia (10.9%), Washington (7.7%), Hawaii (7.7%), and Oregon (7.6%).

Supply chains and infrastructure

Looking months or years down the road, two factors appear to be critical to expanding EV acceptance: initial sticker price of a vehicle, and infrastructure to charge the cars.

The International Council on Clean Transportation has predicted that the purchase price of a new EV could reach cost parity with ICE vehicles in 2024-2025 for shorter-range driving and 2026-2028 for longer ranges.

When cost parity is combined with lower costs of fueling and maintenance, auto research and testing group Consumer Reports has estimated the lifetime cost of ownership for EVs can be $6,000-$10,000 less than a comparable ICE vehicle.

But this changes if the EV cost curve doesn't continue to trend downward. Right now, supply chain challenges are affecting all original equipment manufacturers (OEMs), particularly on computer chips that are critical to every vehicle, regardless of power source. But EVs face a second set of supply chain issues because prices for batteries and battery components are soaring.

"In recent weeks, Tesla has raised prices on their vehicles, as have other OEMs," Fiske said. "Due to production constraints where demand will outpace supply for 2022 and 2023, there is not much incentive for manufacturers to make vehicles more affordable if they know they will be able to sell it either way."

EV costs this year will be pressured by prices for key minerals such as nickel, which has surged to unprecedented levels. Nickel prices briefly closed above $48,000/metric ton (mt) in early March, before trading was suspended on global exchanges. It was about $37,000/mt at close in Europe on 21 March, compared to $16,420 a year ago.

Charging infrastructure

On a positive note for EVs, the charging infrastructure continues to make significant strides. AAI said the US ended 2021 with 44,500 publicly available EV charging locations and 110,158 charging ports—the latter being a 16% increase for the year.

"As the data continues to show, EVs are at an inflection point," Bozella said. "In order to make the transition smoothly and successfully, we need to ensure charging infrastructure is widely available and convenient to use."

He noted that the National Electric Vehicle Infrastructure Guidance, administered by the US Department of Energy, is now managing $5 billion in federal funds that will be disbursed over the next five years for states to establish a nationwide EV charging corridor. This is in addition to $2.5 billion in competitive grant funding for clean vehicle charging and refueling infrastructure that was authorized through the 2021 infrastructure bill.

Now ZETA and AAI are working to increase the federal EV tax credit from the current $2,500 to $7,500 per vehicle (based on the vehicle's battery traction capacity and weight). Congress has proposed raising that to $12,500 per vehicle, but that is part of the Build Back Better plan that has been stalled in the US Senate since January.

Posted 22 March 2022 by Kevin Adler, Chief Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.